Employment effects of business dynamics: mice, gazelles and elephants

Much of the theoretical work on industry dynamics focuses on the role of ‘noisy’ selection and incomplete information on firm entry and survival. We extend this research by looking at the impact of firm heterogeneity on employment effects for 320 U.S. Metropolitan Statistical Areas (MSA). We find that only start-ups with greater than 20 and less than 500 employees have persistent employment effects over time and only in large diversified metropolitan regions. Therefore, both the type of entry (Gazelles) and the characteristics of the region are important for employment growth.