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Small Business Economics

, Volume 44, Issue 3, pp 529–558 | Cite as

Uncertainty and the employment dynamics of small and large businesses

  • Vivek Ghosal
  • Yang Ye
Article

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.

Keywords

Uncertainty Employment Small Businesses Entrepreneurship Real options Financing constraints 

JEL Classifications

L11 D80 O30 G10 L40 

Notes

Acknowledgments

We are extremely grateful to two anonymous referees and the editor for insightful and constructive suggestions that have significantly improved the paper. We are indebted to Christian Gollier and Pierre-André Chiappori for helpful comments on an earlier version of this paper, and to the seminar participants at Mizuho Research Institute (Tokyo), the Development Bank of Japan (Tokyo) and the Center for Economic Studies (Munich) for feedback. Part of this work was conducted when Vivek Ghosal was a Visiting Scholar at the Research Department of the International Monetary Fund (Washington, DC); I benefited from valuable discussions with Prakash Loungani, and helpful suggestions by Sangyup Sam Choi and Akito Matsumoto.

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.School of EconomicsGeorgia Institute of TechnologyAtlantaUSA
  2. 2.European Business SchoolWiesbadenGermany
  3. 3.CESifoMunichGermany
  4. 4.Whitman School of ManagementSyracuse UniversitySyracuseUSA

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