Small and young businesses are essential for job creation, innovation, and economic growth. Even most of the superstar firms start their business life small and then grow over time. Small firms have less internal resources, which makes them more fragile and sensitive to macroeconomic conditions. This suggests the need for frequent and real-time monitoring of the small business sector’s health. Previously this was difficult due to a lack of appropriate data. This paper fills this important gap by developing a new Intuit QuickBooks Small Business Index that focuses on the smallest of small businesses with at most 9 workers in the US and the UK and at most 19 workers in Canada. The Index aggregates a sample of anonymous Quick- Books Online Payroll subscriber data (QBO Payroll sample) from 333,000 businesses in the US, 66,000 in Canada, and 25,000 in the UK. After comparing the QBO Payroll sample data to the official statistics, we remove the seasonal components and use a Flexible Least Squares method to calibrate the QBO Payroll sample data against official statistics. Finally, we use the estimated model and the QBO Payroll sample data to generate a near real-time index of economic activity. We show that the estimated model performs well both in-sample and out-of-sample. Additionally, we use this analysis for different regions and industries. Keywords:

Using variation in the timing and location of branches of failed banks we analyze its effect on income inequality. Employing a difference-in-differences specification we find that bank failures increased the GINI by 0.3 units (or 0.7%). We show that the rise in inequality is due to a decrease in the incomes of the poor that outpaces declines of the rest. We further show that individuals with lower levels of education exhibit a relatively greater decline in real wages and weekly hours worked. Exploring channels of transmission, we find income inequality is explained by a general decline in small business loans. This in turn reduces net new small business formation and their job creation capacity, a sector that hires a substantial share of low-income earners.

We present causal evidence on the rent-sharing elasticity of German manufacturing firms. We develop a new firm-level Bartik instrument for firm rents that combines the firms’ predetermined energy input mix with national energy carrier price changes. Instrumental variable estimation yields a rent-sharing elasticity of approximately 0.20 implying that a 10 percent change in rents leads to a 2 percent change in wages. Rent-sharing induced by energy price variation is asymmetric and driven by energy price increases, such that, on average, workers do not benefit from energy price reductions but are harmed by price increases. Reduced-form evidence shows that a 10 percent increase in firm-level energy prices depresses firm-level wage growth by 0.34 percent.

This paper provides both theoretical and empirical analyses of the differences between BigTech lenders and traditional banks in response to monetary policy changes. Our model integrates Knightian uncertainty into portfolio selection and posits that BigTech lenders possess a diminishing informational advantage with increasing firm size, resulting in reduced ambiguity when lending to smaller firms. The model suggests that the key distinction between BigTech lenders and traditional banks in response to shifts in funding costs, triggered by monetary policy changes, is more evident at the extensive margin rather than the intensive margin, particularly during periods of easing monetary policy. Using a micro-level dataset of small business loans from both types of lenders, we provide empirical support for our theoretical propositions. Our results show that BigTech lenders are more responsive in establishing new lending relationships in an easing monetary policy environment, while the differences in loan amounts are not statistically significant. We also discuss other loan terms and the implications of regulatory policies.

The authors provide a comprehensive overview of codetermination, that is, worker representation in firms’ governance and management. The available micro evidence points to zero or small positive effects of codetermination on worker and firm outcomes and leaves room for moderate positive effects on productivity, wages, and job stability. The authors also present new country-level, general-equilibrium event studies of codetermination reforms between the 1960s and 2010s, finding no effects on aggregate economic outcomes or the quality of industrial relations. They offer three explanations for the institution’s limited impact. First, existing codetermination laws convey little authority to workers. Second, countries with codetermination laws have high baseline levels of informal worker voice. Third, codetermination laws may interact with other labor market institutions, such as union representation and collective bargaining. The article closes with a discussion of the implications for recent codetermination proposals in the United States.

This dissertation is about questions on how German institutions of industrial relations shape plant-level outcomes, and how this influences employer wage differentials. Employer wage differentials point toward imperfect labor markets in which both, employers and employees, benefit from employment rents. It puts the employer at the center of explaining wage differences and how employer characteristics influence these, over which individual employees have only limited control. Arguably, how employers and employees split these rents depend on industrial relations. The German dual model of industrial relations consists of collective bargaining at the industry level and worker co-determination through works councils at the plant level. This dissertation illuminates different aspects of industrial relations and how rent-sharing mechanisms can explain wage inequality in Germany. It does not only focus on how industrial relations shape labor market power and whether labor market power translates into the level and dispersion of employer wage premia. It also contributes to questions that explain differences in plant-level outcomes relating to industrial relations. These include the role of worker co-determination on assortative matching. It is further investigated how works councils affect plant-level reactions during economy-wide shocks. In addition, it offers new causal evidence of rent-sharing mechanisms in Germany. The insights of this dissertation are relevant for policy and economic research alike. It contributes to a better understanding of the role of organized labor in imperfect labor markets and its determinants of employer wage differentials. It approaches the role of worker co-determination from different angles that are important at times of erosion of formal organized labor but gaining interest in worker representation.

The economy is a complex system because market participants do not act independently but adjust their behavior to other agents and to the outcome which emerges from their joint actions (Arthur, 2014). Dependencies among participants can impede policy makers capabilities to influence or steer the course of the economy. Kambhu et al. (2007) argue that to influence developments in financial markets, for instance to prevent crises from spreading, there are only “coarse or indirect options” available for policy makers. Similar to crises which propagate through a complex system, interventions might result in unintended side effects which can also disseminate through the system. Thus, in a complex system, unintended consequences of policy efforts may well be the rule. Policy makers try to ward off or mitigate negative consequences for the economy and society during periods of crisis. For instance, during the Covid crisis large scale support programs for firms in Western economies were set up to avoid bankruptcies. Similarly, during the sovereign debt crisis in the Eurozone, the European Central Bank (ECB) set up large scale asset purchase programs as well as additionally longer-term refinancing operations (LTRO) which provided immediate support to financial market participants’ liquidity positions and thereby prevented a melt-down of the financial system. During these periods, immediate and abundant liquidity supply is of utmost importance. Meanwhile, crisis measures, due to their massive scale and non-specific target group, may entail unknown or unintended side effects for instance on competition among market participants, firms’ investment behavior, or changes in lending strategies and risk taking behavior of banks. Likewise, new regulatory frameworks such as the introduction of new markets can have consequences previously not thought of. For policy makers it is important to know direct effects of policy interventions but also to be aware of the possibility and impact of indirect or unexpected side effects in order to evaluate measures taken and to learn for future design of regulation or intervention.

In economic theory, entrepreneurship is perceived as a driving force behind the process of creative destruction by introducing innovation to the market, crowding out inefficient businesses, and paving the way for economic growth. One central channel through which entrepreneurial activity can be realized is the founding a new firm (Carree & Thurik, 2003). Numerous empirical studies have investigated the causes of firm entry, the subsequent fate of these young businesses, and their impact on the economy (Geroski, 1995; Wagner, 2006). When assessing the importance of start-ups for economic development, their role in the creation and destruction of jobs is a key component. This thesis argues that start-ups’ role as employers should be evaluated not only by the quantity of jobs they create, but also by the quality of these jobs. If new firms differ from incumbents in terms of hiring patterns or employment conditions, this could have serious and long-lasting implications for the careers and personal lives of their employees. Against this background, the four essays of this thesis present new evidence on the hiring behavior of newly founded establishments, as well as on remuneration and employment prospects of workers joining a start-up.