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Uncertainty and the Employment Dynamics of Small and Large Businesses

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  • Vivek Ghosal
  • Yang Ye
Abstract
We examine the impact of uncertainty on employment dynamics. Alternative measures of uncertainty are constructed based on the survey of professional forecasters, and regressionbased 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.

Suggested Citation

  • Vivek Ghosal & Yang Ye, 2015. "Uncertainty and the Employment Dynamics of Small and Large Businesses," IMF Working Papers 2015/004, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2015/004
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    Keywords

    WP; price index; real GDP; dependent variable; uncertainty; employment; small businesses; entrepreneurship; real-options; financing-constraints; uncertainty measure; representative firm; business group; venture capital; size class; costs firms face; stock price index; BLS fuel price indices; fuel price uncertainty; financing-constraints channel; employment decision; inflation rate; Small and medium enterprises; Fuel prices; Inflation; Global;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

    Statistics

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    Corrections

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