A large literature shows that the self-employed underreport their income to tax authorities. In this paper, we quantify the extent to which the self-employed also systematically underreport their ...income in U.S. household surveys. We use the Engel curve describing the relationship between income and expenditures of wage and salary workers to infer the actual income, and thus the reporting gap, of the self-employed based on their reported expenditures. On average, the self-employed underreport their income by about 25%. We show that failing to account for such income underreporting leads to biased conclusions in a variety of settings.
Grown-up Business Cycles Pugsley, Benjamin Wild; Şahin, Ayşegül
The Review of financial studies,
03/2019, Letnik:
32, Številka:
3
Journal Article
Recenzirano
The entry rate of U.S. employer businesses has declined for more than 30 years. We use a novel dynamic decomposition framework to show that regardless of its causes, the direct effects of the ...continued decline in the entry rate and its delayed effects on the firm age distribution together play a major role in the slowing of trend employment growth and the emergence of jobless recoveries. We identify changing demographic structure of the population and increased import competition as leading factors behind the decline in startup activity.
Declining firm entry and the aging incumbent firms have meaningful implications for sluggish U.S. aggregate productivity growth. We provide a framework to characterize the contributions to industry ...productivity growth across the firm age distribution then apply it to firm-level Census data. Several findings emerge: the relationship between firm age and productivity growth is downward sloping and convex; the magnitudes are substantial but fade quickly; selection and reallocation predominantly drive higher productivity growth of young firms. Our results suggest a cumulative drag on aggregate productivity of 3.1% since 1980 and are expanded upon with an IV strategy and standard model of firm dynamics.
“Structural transformation and the rise of information technology” by Gallipoli and Makridis provides compelling evidence on the effects of increasingly productive IT-intensive occupations on ...within-sector productivity growth. I discuss their results and link them to patterns of aggregate productivity growth. While there are limits to aggregate conclusions from within-sector patterns, their findings provide rich empirical restrictions on equilibrium models of structural transformation.
The Nature of Firm Growth Sterk, Vincent; Sedláček, Petr; Pugsley, Benjamin
The American economic review,
02/2021, Letnik:
111, Številka:
2
Journal Article
Recenzirano
About one-half of all startups fail within five years, and those that survive grow at vastly different speeds. Using Census microdata, we estimate that most of these differences are determined by ex ...ante heterogeneity rather than persistent ex post shocks. Embedding such heterogeneity in a firm dynamics model shows that the presence of ex ante heterogeneity (i) is a key determinant of the firm size distribution and firm dynamics, (ii) can strongly affect the macroeconomic effects of firm-level frictions, and (iii) helps understand the recently documented decline in business dynamism by showing a disappearance of high-growth startups (“gazelles”) since the mid-1980s.
We show that most small business owners are very different from the entrepreneurs that economic models and policymakers often have in mind. Using new data that sample entrepreneurs just before they ...start their businesses, we show that few small businesses intend to bring a new idea to market or to enter an unserved market. Instead, most intend to provide an existing service to an existing market. Further, we find that most small businesses have little desire to grow big or to innovate in any observable way. We show that such behavior is consistent with the industry characteristics of the majority of small businesses, which are concentrated among skilled craftspeople, lawyers, real estate agents, health care providers, small shopkeepers, and restaurateurs.Lastly, we show that nonpecuniary benefits (being one's own boss, having flexibility of hours, and the like) play a first-order role in the business formation decision. Our findings suggest that the importance of entrepreneurial talent, entrepreneurial luck, and financial frictions in explaining the firm size distribution may be overstated. We conclude by discussing the potential policy implications of our findings.
We investigate the importance of job-to-job (JJ) transitions for cyclical wage dynamics. By exploiting cross-state variation, we find that wage growth is tightly linked to variation in the JJ ...transition probability, and conditional on this, the job finding probability of the unemployed has no explanatory power. We investigate the robustness of our results to several caveats and find the result to hold. Finally, we discuss the implications of our findings for competing theories of wage dynamics.
The U.S. economy has been going through a striking structural transformation--the secular reallocation of employment across sectors--over the past several decades. We propose a decomposition ...framework to assess the contributions of various margins of firm dynamics to this shift. Using firm-level data, we find that at least 50 percent of the adjustment has been taking place along the entry margin, due to sectors receiving different shares of startup employment than their employment shares. The rest is mostly due to life cycle differences across sectors. Declining overall entry has a small but growing effect of dampening structural transformation.
We show that most small business owners are very different from the entrepreneurs that economic models and policymakers often have in mind. Using new data that sample entrepreneurs just before they ...start their businesses, we show that few small businesses intend to bring a new idea to market or to enter an unserved market. Instead, most intend to provide an existing service to an existing market. Further, we find that most small businesses have little desire to grow big or to innovate in any observable way. We show that such behavior is consistent with the industry characteristics of the majority of small businesses, which are concentrated among skilled craftspeople, lawyers, real estate agents, health care providers, small shopkeepers, and restaurateurs. Lastly, we show that nonpecuniary benefits (being one's own boss, having flexibility of hours, and the like) play a first-order role in the business formation decision. Our findings suggest that the importance of entrepreneurial talent, entrepreneurial luck, and financial frictions in explaining the firm size distribution may be overstated. We conclude by discussing the potential policy implications of our findings. PUBLICATION ABSTRACT
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