Petr Sedláček
    Professor of Economics


Working Papers

New Work from Home, Business Dynamism, and the Macroeconomy  New

   with Chenchuan Shi  | 2024
   Available as a CEPR Discussion Paper 18817

[View abstract]

The COVID-19 pandemic catalyzed a surge in remote work. We propose a new macroeconomic model in which firms can employ workers off-site. Cheaper or more efficient remote work increases profitability and incentivizes firm entry. This, in turn, raises labor demand and wages which elevates business exit and lowers average firm size. We confirm all these predictions in the data. According to our model, the post-pandemic increase in remote work accounts for 1/3 of the observed surge in firm entry. Moreover, despite a shift towards smaller and less productive businesses, a greater number of firms increases aggregate output, consumption and welfare.

New The Impact of Firm Performance on Macroeconomic Outcomes: Evidence from Serial Entrepreneurs  New

   with Micole de Vera, Sonia Felix and Sudipto Karmakar (submitted) | 2024
   Previously circulated as "Serial Entrepreneurs and the Macroeconomy"
   Available as a CEPR Discussion Paper 16449, and Bank of Portugal Working Paper202113

   [VoxEU column]
[View abstract]

Why are some firms more successful than others and how does this shape aggregate outcomes? To address these questions, we use unique administrative data, exploiting information on serial entrepreneurs (owners of multiple firms) as impersonations of business success. First, we document that serial entrepreneurs are three times more likely to own high-growth firms (“gazelles”) and that their businesses disproportionately contribute to aggregate productivity growth, job creation and business dynamism. Second, we show that the success of serial entrepreneurs can largely be traced back to two key sources: their innate characteristics (primarily education and ability) and lower indebtedness of their firms.

Customer Acquisition, Business Dynamism and Aggregate and Growth

   with Marek Ignaszak
   Revision requested at the REVIEW OF ECONOMIC STUDIES | 2023
   Available as a CEPR Discussion Paper 16205

  [Appendix] [VoxEU column]
[View abstract]

Business dynamism – the process of firm entry, growth and exit – lies at the heart of modern endogenous growth models. While productivity differences have traditionally been seen as the main driving forces of business dynamism, a growing body of evidence suggests that customer acquisition frictions are at least as important. In light of this evidence, we propose a novel endogenous growth model in which innovating firms must first acquire customers to sell their products. Estimating our model with aggregate and firm-level data, we find that expansions of firms’ customer bases (market sizes) boost their incentives to innovate and shift resources towards high-growth businesses (``gazelles''). Combined, these effects explain over 1/3 of aggregate growth and substantially change predictions about the efficacy of growth policies. Finally, we document support for key model predictions using firm-level micro-data.

Publications in Refereed Journals

A Congestion Theory of Unemployment Fluctuations

   with Yusuf Mercan and Benjamin Schoefer
   An earlier version is available as a CEPR Discussion Paper 15500| 2022

[View abstract]

We propose a theory of unemployment fluctuations in which new hires and incumbent workers are imperfect substitutes. Hence, attempts to hire away the unemployed during recessions diminish the marginal product of new hires, discouraging job creation. This single feature achieves a ten-fold increase in the volatility of hiring in an otherwise standard search model, produces a realistic Beveridge curve despite countercyclical separations, and explains 30–40% of US unemployment fluctuations. Additionally, it explains the excess procyclicality of new hires’ wages, the cyclical labor wedge, countercyclical earnings losses from job displacement, and the limited steady-state effects of unemployment insurance.

Startups and Employment Following the COVID Pandemic: A Calculator

   with Cristiana Benedetti Fasil and Vincent Sterk
   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
   Media coverage: BusinessThink, ABC Radio, The Australian

  [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
   Media coverage: 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)


Fragmentation of Production and the Wage Distribution

   by Elisa Rubbo, 2023, RBA Workshop in Quantitative Macroeconomics

Endogenous Production Networks under Supply Chain Uncertainty

   by Kopytov, Mishra, Nimark and Taschereau-Dumouchel, 2023, Conference on Networks in Economics, UNSW

Competition, Markups, and Inflation: Evidence from Australian Firm-Level Data

   by Champion, Edmond and Hambur, Reserve Bank of Australia

Turbulent Business Cycles

   by Dong, Liu and Wang, 2022, 9th ABFER Annual Conference

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