nach oben

Small Business Economics

Erschienen in:

01.03.2015

Uncertainty and the employment dynamics of small and large businesses

verfasst von: Vivek Ghosal, Yang Ye

Erschienen in: Small Business Economics | Ausgabe 3/2015

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

We examine the impact of uncertainty on employment dynamics. Alternative measures of uncertainty are constructed based on the survey of professional forecasters, and regression-based forecasting models for GDP growth, inflation, S&P500 stock price index, and fuel prices. Our results indicate that greater uncertainty has a negative impact on growth of employment, and the effects are primarily felt by the relatively smaller businesses; the impact on Large Businesses are generally non-existent or weaker. Our results suggest that to truly understand the effects of uncertainty on employment dynamics, we need to focus on the relatively smaller and entrepreneurial businesses. We discuss implications for the framing of economic policy.

Vorheriger Artikel The determinants of R&D persistence in SMEs

Nächster Artikel Small enterprise affiliations to business associations and the collective action problem revisited

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Nur mit Berechtigung zugänglich

Dixit and Pindyck (1995) present an excellent non-technical exposition of the option value approach. Additional results on the effects of uncertainty via the real-options channel are noted in Abel et al. (1996).

These are presented in Figs. 1 and 3 for the base cases, and Tables 1 and 2 for the general cases.

The class of models considered above require an extensive set of complex mathematical and computational assumptions, and it is very hard to obtain closed-firm solutions; hence, these papers resort to numerical simulations to shed light on the quantitative importance of the effects.

Lensink, Bo and Sterken (2001) provide a lucid discussion of credit market conditions in the general context of investment behavior, including the roles played by uncertainty and sunk costs.

Issues related to uncertainty arising from industry- or-firm-specific demand, cost, regulatory and other aspects can be addressed using micro-datasets. As we have stated earlier, this is not the focus of our more economy-wide analysis as the data from the U.S. Small Business Administration are aggregate.

In a complementary literature, some differentiate between uncertainty v. disagreement. Compare two contexts: experts agree that there is a lot of uncertainty on the future growth rate; experts are confident about their estimation of future growth, but these estimations are very heterogeneous. Gollier and Zeckhauser (2005) demonstrate the effect of disagreement on the aggregate risk premium. While distinguishing between the effects of uncertainty v. disagreement on firms’ decision variables is a useful exercise, we do not explore the implications of this in the current paper.

It is assumed that the expected value of the error term in Eq. (1) is zero.

As the theoretical solution for these models are well established (e.g., Charles et al. 1960; Kennan 1979; Hendry et al. 1983; Jorgenson 1986), we do not repeat the details and model structure here. The optimization models refer to a representative firm and then applied to more or less disaggregated data.

Since we are interested in the short-term effects of uncertainty on employment and that the underlying data on employment and GDP contain trends, we measure both of these variables in logarithmic first-differences (rate of growth), denoted by \({\text{E}}\mathop {\text{M}}\limits^{ \cdot } {\text{P}}_{t}\) and \({\text{G}}\mathop {\text{D}}\limits^{ \cdot } {\text{P}}_{t}\).

We enter the uncertainty measure in natural logarithms as the mean values of the uncertainty variables vary enormously in size across the different measures (see Table 1). Using the actual values of the uncertainty variables in the estimated regressions resulted in large numerical differences in the estimates due to pure scaling effects. Entering the uncertainty variables in natural logarithms resulted in no differences in inferences (related to the Small versus Large Business differences) compared to entering them in levels.

As noted earlier, our six uncertainty measures are constructed over a longer time period. We use their values over 1988–2011 in estimating specification (7).

As we note in Sect. 7.3, our experiments using longer lag lengths did not provide additional insights into the effects of uncertainty.

There is a significant literature which notes the similarities and differences between Small Business and entrepreneurship in dimensions related to growth and innovation. See, for example, ACCA (2010), Carland et al. (1984), di Giovanni et al. (2010) and Katz and Green (2010).

Studies on industry dynamics and firm-churning data show that most business churning occurs at the smaller firm end: for example, Audretsch (1995), Sutton (1997) and Caves (1998). To this extent, purely as an accounting matter, one can argue that if we observe effects, it will more likely be in the smaller business category. But this is not a direct theoretical prediction.

The literature has noted important differences between smaller and larger businesses, and point to smaller firms being relatively credit-constrained. E.g., Audretsch and Elston (1997), Fazzari et al. (1988), Gertler and Gilchrist (1994), Evans and Jovanovic (1989), Lensink et al. (2001), Ghosal and Loungani (2000), Himmelberg and Petersen (1994) and Winker (1999).

The National Economic Council (2011) and Sheets and Sockin (2012) provide extensive discussion on the importance of Small Businesses and policy.

The papers by Audretsch and Elston (1997, 2002), for example, provide important insights in this dimension from German policy initiatives.

There is strong evidence that financing constraints are tighter for more innovative and R&D-intensive firms (e.g., Himmelberg and Petersen 1994; Guiso 1998; and Carpenter and Petersen 2002). With firm or industry data, one could use R&D intensity or high-tech industries as a moderator of the uncertainty–employment relationship (in addition to firm size which we consider). We thank an anonymous referee for pointing this out.

Abdellaoui, M., Bleichrodt, H., & Paraschiv, C. (2007). Loss Aversion under Prospect Theory: A Parameter-free Measurement. Management Science, 1659–1674. doi:10.1287/mnsc.1070.0711

Abel, A., Dixit, A., Eberly, J., & Pindyck, R. (1996). Options, the value of capital, and investment. Quarterly Journal of Economics, 111, 753–777. doi:10.2307/2946671.CrossRef

Abowd, J. M., & Kramarz, F. (2003). The costs of hiring and separations. Labour Economics, 10, 499–530. doi:10.1016/S0927-5371(03)00017-4.CrossRef

Association of Chartered Certified Accountants (ACCA). (2010). Small business: A global agenda. ACCA accountants for business report.

Asteriou, D., & Price, S. (2005). Uncertainty, investment and economic growth: Evidence from a dynamic panel. Review of Development Economics, 277–288.

Audretsch, D. (1995). Innovation and industry evolution. Cambridge: MIT Press.

Audretsch, D., & Elston, J. (1997). Financing the German mittelstand. Small Business Economics, 97–110. doi:10.1023/A:1007963621438

Audretsch, D., & Elston, J. (2002). Does firm size matter? Evidence on the impact of liquidity constraints on firm investment behavior in Germany. International Journal of Industrial Organization, 1–17. doi:10.1016/S0167-7187(00)00072-2

Baker, S., Bloom, N., & Davis, S. (2012). Has economic policy uncertainty hampered the recovery? Chicago booth paper, no. 12-06, 2012. doi:10.2139/ssrn.2000734

Baldwin, J., Gellatly, G., & Gaudreault, V. (2002). Financing innovation in new small firms: New evidence from Canada. Statistics Canada Analytical Studies Series,. doi:10.2139/ssrn.316849.

Bianco, M., Bontempi, M. E., Golinelli, R., & Parigi, G. (2013). Family firms’ investments, uncertainty and opacity. Small Business Economics, 1035–1058. doi:10.1007/s11187-012-9414-3

Bloom, N. (2009). The impact of uncertainty shocks. Econometrica, 623–685.

Bloom, N., Bond, S., & van Reenen, J. (2007). Uncertainty and investment dynamics. Review of Economic Studies, 391–415. doi:10.1111/j.1467-937X.2007.00426.x

Bo, H., & Sterken, E. (2002). Volatility of the interest rate, debt and firm investment: Dutch evidence. Journal of Corporate Finance, 179–193. doi:10.1016/S0929-1199(01)00031-1

Bowman, E. (1980). A risk-return paradox for strategic management. Sloan Management Review, 21, 17–31.

Bowman, E. (1982). Risk seeking by troubled firms. Sloan Management Review, 23, 33–42.

Box, G. E. P., & Jenkins, G. M. (1970). Time series analysis, forecasting and control. San Francisco: Holden Day.

Caballero, R. J., & Engel, E. M. R. A. (1993). Microeconomic adjustment hazards and aggregate dynamics. Quarterly Journal of Economics, 108, 359–383. doi:10.2307/2118335

Caballero, R. J., Engel, E. M. R. A., & Haltiwanger, J. (1997). Aggregate employment dynamics: Building from microeconomic evidence. American Economic Review 87, 115–137. doi:10.3386/w5042

Caglayan, M., Maioli, S., & Mateut, S. (2012). Inventories, sales uncertainty, and financial strength. Journal of Banking & Finance, 2512–2521. doi:10.1016/j.jbankfin.2012.05.006

Campbell, J., & Cochrane, J. (1999). By force of habit: A consumption-based explanation of aggregate stock market behavior. Journal of Political Economy, 107, 205–251. doi:10.1086/250059.CrossRef

Carland, J. W., Hoy, F., Boulton, W. R., & Carland, J. A. C. (1984). Differentiating entrepreneurs from small business owners: A conceptualization. Academy of Management Review, 358. doi:10.1007/978-3-540-48543-8_3

Carpenter, R. E., & Petersen, B. C. (2002). Capital market imperfections, high-tech investment, and new equity financing. Economic Journal, 112, F54–F72. doi:10.1111/1468-0297.00683.CrossRef

Caves, R. (1998). Industrial organization and new findings on the turnover and mobility of firms. Journal of Economic Literature, 36, 1947–1982.

Charles, H., Modigliani, F., Muth, J., & Simon, H. (1960). Planning production, inventories and work force. Englewood Cliffs: Prentice Hall.

Cooper, R., & Willis, J. L. (2009). The cost of labor adjustment: Inferences from the gap. Review of Economic Dynamics, 12, 632–647. doi:10.1016/j.red.2008.12.001.CrossRef

Delli Gatti, D., Gallegati, M., Giulioni, G., & Palestrini, A. (2003). Financial fragility, patterns of firms’ entry and exit and aggregate dynamics. Journal of Economic Behavior and Organization, 51, 2003, 79–97. doi:10.1016/S0167-2681(02)00138-5

Denis, S., & Kannan, P. (2013). The impact of uncertainty shocks on the UK economy. IMF working paper no. 13/66, 2013.

Dixit, A. (1989). Entry and exit decisions under uncertainty. Journal of Political Economy, 97, 620–638.CrossRef

Dixit, A., & Pindyck, R. (1994). Investment under uncertainty. Princeton University Press.

Dixit, A., & Pindyck, R. (1995). The options approach to capital investment. Harvard Business Review, May–June, 105–115.

Drakos, K., & Konstantinou, P. T. (2013). Investment decisions in manufacturing: Assessing the effects of real oil prices and their uncertainty. Journal of Applied Econometrics, 28, 151–165

Driver, C., Temple, P., & Urga, G. (2005). Profitability, capacity, and uncertainty: A model of UK manufacturing investment. Oxford Economic Papers, 120–141. doi:10.1093/oep/gpi001

Driver, C., & Whelan, B. (2001). The effect of business risk on manufacturing investment. Journal of Economic Behavior & Organization, 44, 403–412. doi:10.1016/S0167-2681(00)00145-1.CrossRef

Economist. (2013). Uncertainty and unemployment. The economist.

Elder, J. (2004). Another perspective on the effects of inflation uncertainty. Journal of Money, Credit & Banking, 36, 911–928

Evans, D., & Jovanovic, B. (1989). An estimated model of entrepreneurial choice under liquidity constraints. Journal of Political Economy, 97, 808–827.

Fazzari, S., Hubbard, G., & Petersen, B. (1988). Financing constraints and corporate investment. Brookings Papers on Economic Activity, 141–195. doi:10.3386/w2387

Federal Reserve Bank of Philadelphia. Survey of professional forecasters.

Fiegenbaum, A., & Thomas, H. (1988). Attitudes towards risk and the risk-return paradox: Prospect theory explanations. Academy of Management Journal, 31, 85–106. doi:10.2307/256499.CrossRef

Folta, T., & O’Brien, J. (2004). Entry in the presence of dueling options. Strategic Management Journal, 121–138. doi:10.1002/smj.368

Fountas, S., Karanasos, M., & Kim, J. (2006). Inflation uncertainty, output growth uncertainty and macroeconomic performance. Oxford Bulletin of Economics and Statistics. 319–343. doi:10.1111/j.1468-0084.2006.00164.x

Freel, M. S. (2005). Perceived environmental uncertainty and innovation in small firms. Small Business Economics, 49–64. doi:10.1007/s11187-005-4257-9

Fuss, C., & Vermeulen, P. (2008). Firms’ investment decisions in response to demand and price uncertainty. Applied Economics, 2337–2351. doi:10.2139/ssrn.1691622

Gertler, M., & Gilchrist, S. (1994). Monetary policy, business cycles, and the behavior of small manufacturing firms. Quarterly Journal of Economics, 309–340. doi:10.2307/2118465

Ghosal, V. (1991). Demand uncertainty and the capital-labor ratio: Evidence from the U.S. manufacturing sector. Review of Economics and Statistics, 73, 157–162. doi:10.2307/2109699.CrossRef

Ghosal, V. (1995). Input choices under price uncertainty. Economic Inquiry, 33, 142–158. doi:10.1111/j.1465-7295.CrossRef

Ghosal, V. (1996). Does uncertainty influence the number of firms in an industry? Economics Letters, 50, 229–237. doi:10.1016/0165-1765(95)00747-4.CrossRef

Ghosal, V. (2009). The effects of uncertainty and sunk costs on firms’ decision-making: Evidence from net entry, industry structure and investment dynamics. In G. Calcagnini & E. Saltari (Eds.), The economics of imperfect markets (Chapter 9, pp. 167–182), New York: Contributions to Economics, Springer. doi:10.1007/978-3-7908-2131-4_9

Ghosal, V., & Loungani, P. (1996). Product market competition and the impact of price uncertainty on investment: Some evidence from US manufacturing industries. Journal of Industrial Economics, 217–228. doi:10.2307/2950647

Ghosal, V., & Loungani, P. (2000). The differential impact of uncertainty on investment in small and large businesses. Review of Economics and Statistics, 338–343. doi:10.2139/ssrn.236097

Gilchrist, S., Sim, J. W., Zakrajšek, E. (2014). Uncertainty, financial frictions, and investment dynamics. NBER working paper no. 20038. doi:10.3386/w20038

Gollier, C., & Zeckhauser, R. (2005). Aggregation of heterogeneous time preferences. Journal of Political Economy, 113, 878–896. doi:10.1086/430853.CrossRef

Greasley, D., & Madsen, J. (2006). Investment and uncertainty: Precipitating the great depression in the United States. Economica, 393–412. doi:10.1111/j.1468-0335.2006.00505.x

Greenwald, B., & Stiglitz, J. (1990a). Asymmetric information and the new theory of the firm: Financial constraints and risk behavior. American Economic Review, 80, 160–165.

Greenwald, B., & Stiglitz, J. (1990b). Macroeconomic models with equity and credit rationing. In R. G. Hubbard (Ed.), Asymmetric information, corporate finance, and investment (pp. 15–42). Chicago: University of Chicago Press. doi:10.3386/w3533

Greenwald, B., & Stiglitz, J. (1992). Information, finance, and markets: The architecture of allocative mechanisms. Industrial and Corporate Change, 1, 37–63. doi:10.3386/w3652.CrossRef

Greenwald, B., Stiglitz, J., & Weiss, A. (1984). Informational Imperfections in the capital market and macroeconomic fluctuations. American Economic Review, 74, 194–199.

Guiso, L. (1998). High-tech firms and credit rationing. Journal of Economic Behavior & Organization, 35, 39–59. doi:10.1016/S0167-2681(97)00101-7.CrossRef

Guo, H., & Kliesen, K. (2005). Oil price volatility and U.S. macroeconomic activity. Federal Reserve Bank of St. Louis Review, 669–683. doi:10.3886/ICPSR01322.v1

Hamermesh, D. S. (1992). A general model of dynamic labor demand. Review of Economics and Statistics, 74, 733–737. doi:10.2307/2109390

Hamermesh, D. S., & Pfann, G. A. (1996). Adjustment costs in factor demand. Journal of Economic Literature, 34, 1264–1292.

Hartman, R. (1972). The effects of price and cost uncertainty on investment. Journal of Economic Theory, 5, 258–266. doi:10.1016/0022-0531(72)90105-6.CrossRef

Hartman, R. (1973). Adjustment costs, price and wage uncertainty, and investment. Review of Economic Studies, 40, 259–267. doi:10.2307/2296652.CrossRef

Hartman, R. (1976). Factor demand with output price uncertainty. American Economic Review, 66, 675–681.

Hendry, D., Pagan, A., & Sargan, D. (1983). Dynamic specification. In Z. Griliches & M. Intriligator (Eds.), Handbook of econometrics. Amsterdam: North-Holland. doi:10.1016/S1573-4412(84)02010-9

Himmelberg, C., & Petersen, B. (1994). R & D and internal finance: A panel study of small firms in high-tech industries. Review of Economics and Statistics, 76, 38–51. doi:10.2307/2109824.CrossRef

Huizinga, J. (1993). Inflation uncertainty, relative price uncertainty, and investment in U.S. manufacturing. Journal of Money, Credit and Banking, 521–549. doi:10.2307/2077721

Jorgenson, D. (1986). Econometric methods for modeling producer behavior. In Z. Griliches & M. Intriligator (Eds.), Handbook of econometrics. Amsterdam: North Holland. doi:10.1016/S1573-4412(86)03011-8

Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47, 263–292.CrossRef

Katz, J., & Green, R. (2010). Entrepreneurial small business. New York: McGraw-Hill.

Kennan, J. (1979). The estimation of partial adjustment models with rational expectations. Econometrica, 1441–1455. doi:10.2307/1914011

Kilian, L. (2008). Exogenous oil supply shocks: How big are they and how much do they matter for the U.S. economy? Review of Economics and Statistics, 216–240. doi:10.1162/rest.90.2.216

Koetse, M. J., van der Vlist, A. J., & de Groot, H. L. F. (2006). The impact of perceived expectations and uncertainty on firm investment. Small Business Economics, 365–376. doi:10.1007/s11187-005-3201-3

Kulatilaka, N., & Perotti, E. C. (1998). Strategic growth options. Management Science, 1021–1031. doi:10.1287/mnsc.44.8.1021

Leduc, S., & Liu, Z. (2012). Uncertainty, unemployment, and inflation. Federal Reserve Bank of San Francisco.

Lensink, R., Bo, H., & Sterken, E. (2001). Investment, capital market imperfections, and uncertainty: Theory and empirical results. Edgar Elgar.

Lensink, R., van Steen, P., & Sterken, E. (2005). Uncertainty and growth of the firm. Small Business Economics, 381–391. doi:10.1007/s11187-005-7121-z

Levy, M., & Levy, H. (2002). Prospect theory: Much ado about nothing. Management Science, 1334. doi:10.1287/mnsc.48.10.1334.276

Li, Y. (2008). Duration analysis of venture capital staging: A real options perspective. Journal of Business Venturing, 497–512. doi:10.1016/j.jbusvent.2007.10.004

Li, D. (2013). Multilateral R&D alliances by new ventures. Journal of Business Venturing, 241–260. doi:10.1016/j.jbusvent.2012.02.004

Li, Y., & Mahoney, J. T. (2011). When are venture capital projects initiated? Journal of Business Venturing, 239–254. doi:10.1016/j.jbusvent.2009.08.001

Marcellino, M., & Stock, J., & Watson, M. (2003). Macroeconomic forecasting in the Euro Area: Country specific versus Euro wide information. European Economic Review, 1–18. doi:10.1016/S0014-2921(02)00206-4

McDonald, R., & Siegel, D. (1986). The value of waiting to invest. Quarterly Journal of Economics, 101, 707–728. doi:10.2307/1884175.CrossRef

Meese, R., & Geweke, J. (1984). A comparison of autoregressive univariate forecasting procedures for macroeconomic time series. Journal of Business and Economic Statistics, 191–200. doi:10.2307/1391702

Mishkin, F. S. (2011). Over the cliff: From the subprime to the global financial crisis. Journal of Economic Perspectives, 49–70. doi:10.1257/jep.25.1.49

National Economic Council. (2011). The small business agenda: Growing America’s small businesses to win the future.

Nickell, S. J. (1986). Dynamic models of labour demand. In O. Ashenfelter & R. Layard (Eds.), Handbook of labor economics (Vol. 1, Chapter 9, pp. 473–522). Amsterdam: Elsevier Science Publishers. doi: 10.1016/S1573-4463(86)01012-X

Oi, W. Y. (1962). Labor as a quasi-fixed factor. Journal of Political Economy, 70, 538–555. doi:10.1086/258715.CrossRef

Oriani, R. (2007). Technology switching option and the market value of the firm: A model and an empirical test. Advances in Strategic Management, 24, 429–458. doi:10.2139/ssrn.763544.CrossRef

Oriani, R., & Sobrero, M. (2008). Uncertainty and the market valuation of R&D within a real options logic. Strategic Management Journal, 343–361. doi:10.1002/smj.664

Pindyck, R. (1993). Investments of uncertain cost. Journal of Financial Economics, 34, 53–76. doi:10.1016/0304-405X(93)90040-I.CrossRef

Podoynitsyna, K., Song, M., van der Bij, H., & Weggeman, M. (2013). Improving new technology venture performance under direct and indirect network externality conditions. Journal of Business Venturing, 195–210. doi:10.1016/j.jbusvent.2012.04.004

Sandmo, A. (1971). On the theory of the competitive firm under price uncertainty. American Economic Review, 61, 65–73.

Sargent, T. (1978). Estimation of dynamic labor demand schedules under rational expectations. Journal of Political Economy, 86, 1009–1044. doi:10.1086/260726.CrossRef

Sheets, N., & Sockin, R. (2012). Does size really matter? The evolving role of small firms in the U.S. economy. Empirical & Thematic Perspectives, Citi Research.

Stein, L., & Stone, E. (2010). The effect of uncertainty on investment: evidence from options. Stanford University working paper. doi:10.2139/ssrn.1649108

Sutton, J. (1997). Gibrat’s legacy. Journal of Economic Literature, 35, 40–59.

U.S. Small Business Administration. (2014). Advocacy: The voice of small business in Government. Frequently asked questions about small business finance.

Winker, P. (1999). Causes and effects of financing constraints at the firm level. Small Business Economics, 169–181. doi:10.1023/A:1008035826914

Titel: Uncertainty and the employment dynamics of small and large businesses
verfasst von: Vivek Ghosal
Yang Ye
Publikationsdatum: 01.03.2015
Verlag: Springer US
Erschienen in: Small Business Economics / Ausgabe 3/2015
Print ISSN: 0921-898X
Elektronische ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-014-9614-0

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Weitere Artikel der Ausgabe 3/2015

A long-run survival analysis of corporate liquidations in Ireland

Economic failure and the role of plant age and size

Regional entrepreneurship and innovation in Chile: a knowledge matching approach

Small enterprise affiliations to business associations and the collective action problem revisited

Incumbent positioning as a determinant of strategic response to entry

Heterogeneous entrepreneurs from occupational choices in economies with minimum wages

Premium Partner