Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/100637
Authors: 
Huber, Peter
Oberhofer, Harald
Pfaffermayr, Michael
Year of Publication: 
2013
Series/Report no.: 
Working Papers in Economics and Finance, University of Salzburg 2013-05
Abstract: 
This paper analyzes econometric models of the Davis, Haltiwanger and Schuh (1996) job creation rate. In line with the most recent job creation literature, we focus on employment-weighted OLS estimation. Our main theoretical result reveals that employment-weighted OLS estimation of DHS job creation rate models provides biased marginal effects estimates. The reason for this is that by definition, the error terms for entering and exiting firms are non-stochastic and non-zero. This violates the crucial mean independence assumption requiring that the conditional expectation of the errors is zero for all firms. Consequently, we argue that firm entries and exits should be analyzed with separate econometric models and propose alternative maximum likelihood estimators which are easy to implement. A small-scale Monte Carlo analysis and an empirical exercise using the population of Austrian firms point to the relevance of our analytical findings.
Subjects: 
DHS job creation rate
firm size
firm age
maximum likelihood estimation
three-part model
multi-part model
Monte Carlo simulation
JEL: 
C18
C53
D22
E24
L25
L26
M13
Document Type: 
Working Paper

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