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Born in bad times: Economic conditions, selection and employment

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Author

Lynda Sanderson

Date published

31 January 2024

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This paper explores patterns of firm birth, growth, and death for cohorts of New Zealand firms born between 2002 and 2015 and examines the role of selection for explaining those patterns. Our findings show:

  • Firms born in "bad times" – the years of and immediately following the Global Financial Crisis – are shown to start out, and remain, smaller than comparable firms born in more buoyant economic circumstances.
  • Industry composition, firm type, and the characteristics of entrepreneurs are shown to vary across the economic cycle but cannot fully explain the size gap. While firm size gaps are small in absolute terms, as entering firms tend to be very small regardless of the economic conditions, when aggregated across firms these small employment gaps can lead to sizeable reductions in cohort employment.

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