The Time Trend Analysis Of The Effect Of U.S. New Establishments On Employment

As a main source of the economic development, new establishments contribute to the American economy in the aspects of employment creation, technology initiatives and economic aggregate. That’s why the American government actively provides policy initiatives for the start-up entrepreneurs. However, current academic studies on the post-entry economic contribution of the American new establishments have not provided sufficient evidence. Some scholars (such as Lundstrom and Stevenson,2005) conducted empirical studies and found that the new establishments have a positive relationship with the American economic development, but the research only considered the contributions to the entry-year without studying the new establishments’lagging effects on economy. Later, even though some scholars have studied the lag-structure of the effects, the lagging period was short and couldn’t precisely indicate the long-term trend of the effects. In addition, recently there are many comparative studies on the economic contributions between new small establishments and new large/medium establishments, but most of the researches were conducted by simple data analysis without deeply investigating the lag-structure of the effects of the new establishments in different sizes. Therefore, the purposes of this thesis are to first analyze the lag-structure of effects of the new establishment formation on employment change and further investigate the effect trend of the new establishments in different sizes.In order to analyze the above issues, this thesis combines the qualitative and quantitative analysis. In qualitative analysis, the thesis explores how the new establishments contribute to the economic development to provide theoretical support for the following empirical studies. In quantitative analysis, this thesis first studies the structure and extent of the time lags of all the new establishments by applying the Fixed-Effect Distributed Lag Model with Almon Polynomial Method, and then investigated the relationship between employment change and new establishments in different sizes.The empirical results indicate that the effects of all the new establishments on employment change experiences three phases over time. Phase I is the direct effect phase mainly caused by workforce demand of the new establishment formation. Phase Ⅱ is the "marketing selection" phase due to the entry of the new establishments. During this phase, the employment growth will decline because of the exit of the low efficient businesses. Phase Ⅲ is the supply-side effect phase, during which the employment growth will become positive again due to the improvement of the supply level.In addition, the results also show that new establishments in different sizes have different time trend. The effects of the small establishments keep positive during ten lagging years, but the magnitude decreases over time. Medium establishments almost have the same time trend as all the new establishments during ten years’lagging period. As for big establishments, their time trend is in U shape.Last, the thesis further explores what lead to the time trend differences among the new establishments in different sizes and finds that the workforce quality, the quantity and quality of available resources and the innovation of provided goods or services are the main factors.