Petr Sedláček
    Professor of Economics


Working Papers

Serial Entrepreneurs and the Macroeconomy New

   with Sonia Felix and Sudipto Karmakar (submitted)
   Available as a CEPR Discussion Paper 16449, and Bank of Portugal Working Paper202113 | 2022

   [VoxEU column]
[View abstract]

Are serial entrepreneurs – owners of multiple firms – only rare occurrences or are they important for understanding the macroeconomy and aggregate business dynamism? Using unique administrative data, we document four new facts about firms of serial entrepreneurs: compared to other businesses, they (i) disproportionately contribute to aggregate job creation and productivity growth, (ii) are bigger and faster-growing, (iii) shape aggregate business dynamics and (iv) already the very first firms of serial entrepreneurs display superior performance. Finally, we discuss implications of our results for theoretical and quantitative macroeconomic models which -- despite embracing firm heterogeneity -- effectively ignore serial entrepreneurship.

Productivity, Demand and Growth

   with Marek Ignaszak
   Available as a CEPR Discussion Paper 16205| 2021

  [Appendix] [VoxEU column]
[View abstract]

Modern theories of endogenous growth posit a tight link between firm-level productivity, creative destruction (business survival and expansion) and aggregate economic growth. However, recent empirical evidence suggests that firm-level survival and growth are largely demand-driven. We integrate these empirical patterns into a new endogenous growth model in which heterogeneous firms survive and innovate based on not only productivity, but also demand. We show analytically that firm-level demand variation impacts aggregate growth by changing firms’ incentives to innovate. In addition, firms with higher expected demand growth respond more strongly to R\&D subsidies. Taking our model to U.S. Census firm data, we estimate that $20\%$ of aggregate growth is demand-driven. Moreover, allowing for demand-driven creative destruction has strong policy implications as it substantially alters the economy’s responses to pro-growth interventions. Finally, we find direct empirical support for our model mechanism in firm-level data.

A Congestion Theory of Unemployment Fluctuations  New

   with Yusuf Mercan and Benjamin Schoefer
   R&R at American Economic Journal: Macroeconomics
   Available as a CEPR Discussion Paper 15500| 2022

[View abstract]

In recessions, unemployment increases despite the - perhaps counterintuitive - fact that the number of unemployed workers finding jobs expands. We propose a theory of unemployment fluctuations resting on this countercyclicality of gross flows from unemployment into employment. In recessions, the abundance of new hires "congests" the jobs the unemployed fill - diminishing their marginal product and discouraging further job creation. Countercyclical congestion explains 30-40% of US unemployment fluctuations. Additionally, it explains the excess procyclicality of new hires' wages, the cyclical labor wedge, the large earnings losses from job displacement and from graduating during recessions, and the insensitivity of unemployment to policies such as unemployment insurance.

Publications in Refereed Journals

Startups and Employment Following the COVID Pandemic: A Calculator

   with Cristiana Benedetti Fasil and Vincent Sterk
   Accepted at ECONOMIC POLICY | 2022
   An earlier version is available in COVID ECONOMICS, Issue 13 | 2020
   European Commission Country reports
   Online Calculator for: 23 European economies and the US economy

  [VoxEU column] [Press release] [Replication files]
[View abstract]

Early indicators suggest that startup activity across countries is heavily affected by the COVID-19 pandemic and the associated lockdowns. At the same time, empirical evidence has shown that such disturbances may have long-lasting effects on aggregate employment. This paper presents a calculator which can be used to compute these effects under different scenarios regarding (i) the number of startups, (ii) the growth potential of startups, and (iii) the survival rate of young firms. We apply our calculator to the U.S. and four European countries: France, Germany, Italy and Spain. We find that employment losses can be substantial and last for more than a decade, even when the assumed slump in startup activity is only short-lived. Almost half of the long-run losses is caused by fewer high-growth firms, ``gazelles'', starting up during the pandemic. Our results also suggest that the long-run effects of the pandemic may vary across countries substantially with Germany possibly being shielded due to its low degree of business dynamism.

The Macroeconomic Impact of Trump

   with Benjamin Born, Gernot Mueller and Moritz Schularick

  [VoxEU column]
[View abstract]

How much credit does Donald Trump deserve for the macroeconomic performance of the US economy? Growth and job creation have been robust during the first 2.5 years since he took office, but this does not prove that Trump made a difference. In this note we develop a counterfactual scenario for how the US economy would have evolved without Trump---we let a matching algorithm determine which combination of other economies best resembles the pre-election path of the US economy. We then compare the post-election performance of the US economy to this synthetic "doppelganger". For now there is little evidence for a Trump effect.

Nature of Firm Growth

  with Benjamin Pugsley and Vincent Sterk

  [VoxEU column] [Appendix] [Download Autocovariances]
[View abstract]

About half of all startups fail within five years, and those that survive grow at vastly dierent speeds. Using Census microdata, we estimate that most of these dierences 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 impact 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.

Lost Generations of Firms and Aggregate Labor Market Dynamics

[View abstract]

Can the unprecedented lack of startups during the U.S. Great Recession have persistently negative effects? While fewer firms hiring workers can mechanically reduce employment for many years, this may be offset by feedback effects on lower wages, slacker labor markets and higher profits. An estimated model of firm dynamics and frictional labor markets suggests that such feedback effects are too weak to offset the direct impact of fewer startups. Had firm entry remained constant during the Great Recession, output would have recovered 4–6 years earlier and unemployment would have been 0.5 percentage points lower even 10 years after the crisis.

Creative Destruction and Uncertainty

[View abstract]

Uncertainty rises in recessions. But does uncertainty cause downturns or vice versa? This paper argues that uncertainty fluctuates endogenously in response to technology growth changes. In a firm dynamics model with endogenous technology adoption, faster technology growth widens the dispersion of firm-level productivity shocks, a benchmark uncertainty measure. Moreover, faster growth spurs a creative destruction process, generates a temporary downturn and renders uncertainty counter-cyclical. Estimates from structural VARs on U.S. data confirm the model's predictions. On average, shocks to technology growth explain 1/4 of the cyclical variation in uncertainty, and up to 2/3 around the "dot-com" bubble.

The Costs of Economic Nationalism: Evidence from the Brexit Experiment

   with Benjamin Born, Gernot Mueller and Moritz Schularick
   In the media: Financial Times, The Independent, Bloomberg

  [VoxEU column]
[View abstract]

Economic nationalism is on the rise, but at what cost? We study this question using the unexpected outcome of the Brexit vote as a natural macroeconomic experiment. Employing synthetic control methods, we first show that the Brexit vote has caused an output loss of about 2.4 percent by year-end 2018. An expectations-augmented VAR reveals that these costs are to a large extent caused by a downward revision of growth expectations in response to the vote. Linking quasi-experimental identification to structural time-series estimation allows us to not only quantify the aggregate costs but also to understand the channels through which expected economic disintegration impacts the macroeconomy.

Reviving American Entrepreneurship? Tax Reform and Business Dynamism

   with Vincent Sterk
   Carnegie-Rochester-NYU Conference Series on Public Policy

[View abstract]

The 2017 Tax Cuts and Jobs Act slashed tax rates on business income and introduced immediate expensing of investments. Using a quantitative heterogeneous- firms model, we investigate the long-run e ects of such tax reforms on firm dynamics. We find that they can substantially increase business dynamism, potentially offsetting the large decline in the U.S. startup rate observed over recent decades. This result is driven by indirect equilibrium forces: the tax reform stimulates firm entry, leading to an increase in labor demand and wages, which in turn makes firm selection more stringent. Related to this is a large boost of the number of firms and of aggregate output, investment and employment.

Unemployment and the Labor Share

   with Sephorah Mangin
[View abstract]

The labor share fluctuates over the business cycle. To explain this behavior, we develop a novel model featuring direct competition between heterogeneous firms to hire workers. This simultaneously endogenizes both average match productivity and the division of output between workers and firms. In existing matches, wages partly reflect labor market conditions at the time of hiring. A positive TFP shock therefore reduces the aggregate labor share, making it counter-cyclical. However, greater competition and lower unemployment increase labor's share among new firms. As more firms enter, the aggregate labor share rises and eventually overshoots its initial level, as in the data.

The Growth Potential of Startups Over the Business Cycle

   with Vincent Sterk
[View abstract]

This paper shows that employment in cohorts of U.S. fims is strongly influenced by aggregate conditions at the time of their entry. Employment fluctuations of startups are pro-cyclical, they persist into later years and cohort-level employment variations are largely driven by differences in firm size, rather than the number of firms. An estimated general equilibrium firm dynamics model reveals that aggregate conditions at birth, rather than post-entry choices, drive the majority of cohort-level employment variation, by affecting the share of startups with high growth potential. In the aggregate, changes in startup conditions result in large slow-moving fluctuations in employment.

The Aggregate Matching Function and Job Search from Employment and Out of the Labor Force

  [Appendix] [Matlab code]
[View abstract]

The majority of new jobs in the U.S. is filled by workers coming from employment or from out of the labor force (inactivity). Yet, because the number of job seekers in these groups is unobserved, they are often ignored in empirical labor market studies. This paper, instead, uses latent-variable techniques to estimate the aggregate matching function - a relation between hires, vacant jobs and job seekers - while considering searchers from unemployment, employment and inactivity. Importantly, the estimation allows for the (match) efficiency with which these three groups of searchers find jobs to vary on average and over time. This paper finds that almost half of the rise in U.S. unemployment during the Great Recession is explained by a drop in match efficiency of the unemployed. This contrasts sharply with previous studies which found match efficiency to be quantitatively unimportant.

Inefficient Continuation Decisions, Job Creation Costs, and the Cost of Business Cycles

   with Wouter den Haan
[View abstract]

This paper develops a model according to which the costs of business cycles are nontrivial because they reduce the average level of output. The reason is an interaction between job creation costs and an agency problem. The agency problem triggers separations during economic downturns even though both the employer and the worker would be better off if the job was not discontinued, that is, affected jobs have strictly positive surplus values. Similarly, booms make it possible for more jobs to overcome the agency problem. These e ects do not offset each other, because business cycles reduce the expected job duration for these jobs. With positive job creation costs, business cycles then reduce the creation of valuable jobs and lower average activity levels. Considering a wide range of parameter values, we find estimates for the cost of business cycles ranging from 2.03% to 12.7% of GDP.

Match Efficiency and Firms' Hiring Standards

[View abstract]

During the last recession, new hires were lower than would be predicted by a standard matching function and the observed ratio of searching workers and firms. This paper first estimates U.S. match efficiency as an exogenous residual in the matching function using a simple search and matching model. It finds match efficiency to be pro-cyclical and to account for about 1/4 of unemployment increases during the most severe recessions. Second, this paper proposes a model with endogenous separations and firing costs that endogenizes match efficiency, which is driven by firms' hiring standards. The model can explain almost 1/2 of the variation in the initial estimate of match efficiency.

Institutional Conditions of Monetary Policy Conduct in the Czech Republic


[View abstract]

This paper tries to assess the conditions under which the CNB operates. Using a basic framework suggested by Mishkin (2000), the aim is to find out whether the central bank is able to conduct high-quality monetary policy. First, general principles that central banks should follow to succeed in their pursuit of monetary goals are theoretically introduced. Then, these theoretical principles are looked at in the Czech context. Issues of the strictness and suitability of concrete monetary policy of the CNB will not be dealt with, rather institutional circumstances that potentially allow successful policy are at the centre of this paper. It is concluded that the CNB is functioning in a moderately good environment, but still much room for improvement does exist.

Other Publications

EU start-up calculator: Impact of COVID-19 on aggregate employment. Scenario for Austria, Belgium, Germany, Hungary, Italy and Spain

   with Cristiana Benedetti Fasil and Vincent Sterk, JRC Technical Report, European Commission, 2020

EU start-up calculator: Impact of COVID-19 on aggregate employment. Scenario for Denmark, Estonia, Finland, France, Latvia, Lithuania, Portugal and Sweden.

   with Cristiana Benedetti Fasil and Vincent Sterk, JRC Technical Report, European Commission, 2020

EU start-up calculator: Impact of COVID-19 on aggregate employment. Scenario for Bulgaria, Croatia, Czech Republic, Luxembourg, Netherlands, Poland, Romania, Slovakia and Slovenia.

   with Cristiana Benedetti Fasil and Vincent Sterk, JRC Technical Report, European Commission, 2020

Startups and Young Firms in the Economy

   in New Entrepreneurial Growth Agenda, Section 3, Kauffman Foundation, February 2016

Analysis of the Investment Cycle

   Statistika, 6, 2006 (in Czech)

Monitoring and Analysis of the Business Cycle

   with Slavoj Czesany and Lenka Machackova, Czech Statistical Office, 2006 (in Czech)

The Labor Market

   in Analysis of Contexts of Macroeconomic Development of the Czech Republic in 2005, Czech Statistical Office, 2006 (in Czech)

Monitoring and Analysis of the Investment Cycle

   Czech Statistical Office, 2006 (in Czech)

Gross Fixed Capital Formation

   in Analysis of Contexts of Macroeconomic Development of the Czech Republic in 2005, Czech Statistical Office, 2006 (in Czech)


Measuring Labor-Force Participation and The Incidence and Duration of Unemployment

   by Ahn, Hamilton, 2021, 4th IZA Labor Statistics Workshop

COVID-19 is also a Reallocation Shock

   by Barrero, Bloom, Davis 2020, 51st Annual MMF Conference

Small Business Training to Improve Management Practices in Developing Countries: Re-assessing the evidence for "training doesn’t work"

   by McKenzie, 2020, Management Practices, OxRep, UK

Towards a Dynamic, Stochastic, Disequilibrium Theory

   by Guzman and Stiglitz, 2019 Towards Better Macroeconomic Theory and Policy-Making, OxRep, UK

Competition and Inequality

   by Colciago and Mechelli, 2019 Income and Wealth Inequality in the 21st Century, DNB, Netherlands

Employemnt and the Collateral Channel of Monetary Policy

   by Bahaj, Foulis, Pinter, Surico, 2019 5th Research Forum on Macro-Finance, Bank of England, UK

Monetary Policy, Corporate Finance and Investment

   by Cloyne, Ferreira, Froemel, Surico, 2019 50th Konstanz Seminar on Monetary Theory and Monetary Policy, Germany

Existence and Uniqueness of Recursive Equilibria with Aggregate and Idiosyncratic Risk

   by Proehl, 2019, Global Macro Workshop, CERGE-EI, Czech Republic

Inequality, Business Cycles, and Monetary-Fiscal Policy

   by Bhandari, Evans, Golosov, Sargent, 2019 Money Macro Workshop, ECB, Germany

The Optimal Amount of Attention to Capital Income Risk

   by Yin, 2018 T H E Workshop, Hohenheim, Germany

The Employment Effects of Corporate Tax Shocks: New Evidence and Some Theory

   by Colciago, Lewis and Matyska, 2017 Cologne, Germany

Default Risk and Aggregate Fluctuations in an Economy with Production Heterogeneity

   by Khan, Senga, Thomas, 2017, 48th Konstanz Seminar, Germany

Understanding the 30 year Decline in Business Dynamism: A General Equilibrium Approach

   by Karahan, Pugsley, Sahin, 2015, New Developments in Business Cycle Analysis, Montreal, Canada

Surprise, Surprise - Measuring Firm-level Investment Innovations

   by Bachmann, Elstner, Hristov, 2014, The European Crisis-Causes and Consequences, University of Bonn

Labor Market Reform and the Cost of Business Cycles

   by Krebs, Scheffel, 2014, Summer Symposium in International Macroeconomics, Tarragona, Spain

Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects

   by Hagedorn, Karahan, Manovskii, Mitman, 2013, Cologne Macro Workshop

Loss Aversion and the Assymetric Transmission of Monetary Policy

   by Gaffeo, Petrella, Pfajfar, Santoro, 2012, Cologne Macro Workshop

Work in Progress