Who Creates Stable Jobs? Evidence from Brazil
| Published date | 01 June 2019 |
| Date | 01 June 2019 |
| DOI | http://doi.org/10.1111/obes.12273 |
540
©2018 The Department of Economics, University of Oxford and JohnWiley & Sons Ltd.
OXFORD BULLETIN OF ECONOMICSAND STATISTICS, 81, 3 (2019) 0305–9049
doi: 10.1111/obes.12273
Who Creates Stable Jobs? Evidence from Brazil*
Peter Brummund† and Laura Connolly‡
†Economics, Finance, and Legal Studies, University of Alabama, 253 Alston Hall, Box
870224, Tuscaloosa, AL 35487, USA (e-mail: pbrummund@cba.ua.edu)
‡School of Business and Economics, Michigan Technological University, Houghton, MI
49931, USA (e-mail: leconn@mtu.edu)
Abstract
Recent research shows that start-ups are important for job creation, but these firms are
also inherently volatile. We use linked employer–employee data to examine the relative
importance of firm age and firm size for job creation and destruction in Brazil. Firm age
is a more important determinant of job creation in Brazil than firm size; young firms and
start-ups create a relatively high number of jobs. However, young firms are also more likely
to exit the market and have higher levels of employment volatility. We, therefore, condition
the job creation analysis on job stability.Young firms and large firms create relatively more
stable jobs in Brazil.
I. Introduction
The view that small businesses fuel job creation remains a popular belief among policy-
makers. Early empirical research found an inverse relationship between firm growth rates
and firm size (Birch, 1981). However, more recent research improved upon previousmeth-
ods and showed that firm age is a more important determinant of job creation than firm size
(Davis, Haltiwanger and Schuh, 1996b; Davidsson, Lindmark and Olofsson, 1998). That
is, young firms and start-ups contribute more to job creation than small firms in many ad-
vanced economies (Haltiwanger,Jarmin and Miranda, 2013; Decker et al., 2014). However,
young firms and firm start-ups are inherently volatile and exhibit relatively high employ-
ment turnover rates (Haltiwanger et al., 2012). While that volatility is a natural part of
business dynamics, it also provides a note of caution about job creation policies. If policies
designed to create jobs target young firms, they could increase job turnoverin the economy.
While job turnover can improvematches between a worker and an employer, it is also costly
for both parties (Jacobson, LaLonde and Sullivan, 1993; Couch and Placzek, 2010; Davis
and von Wachter, 2011). Therefore, it is worthwhile to further explore the role of firm age
and firm size in employment growth to determine what types of firms create stable jobs.
JEL Classification numbers: L25, J23, J63.
*Theauthors are g rateful to Susan Chen, James Fenske,three anonymous referees and participants of the American
Economic AssociationAnnual Meeting (2017), Southern Economic Association Annual Meeting (2015), and United
States International Trade Commission workshop for helpful comments and suggestions. All remaining errors are
our own.
Who creates stable jobs? 541
In this paper, we analyse the relationship between firm characteristics and employment
dynamics in the context of an emerging economy, Brazil. We use a linked employer–
employee data set for the formal labour market in Brazil for 2004–13 and follow the
methodology of Haltiwanger et al. (2013). A linked employer–employee data set is ideal
for studying employment dynamics, particularly when conditioned on a measure of job
stability, due to the ability to track workers, establishments, and firms across time. We aim
to first document the role of firm size and firm age in job creation and job destruction in
Brazil. Then, we examine the relationship between firm size, firm age and employment
volatility in Brazil. Last, we condition the job creation analysis on two measures of job
stability to identify what types of firms create stable jobs in Brazil.
Weextend the literature in two primary ways. First,we document the relative importance
of firm age and firm size in employment dynamics in Brazil. Most of the literature uses data
from the United States or other developed countries (Davis et al., 1996b; Neumark, Wall
and Zhang, 2011; Haltiwanger et al., 2013; Criscuolo, Gal and Menon, 2014). Criscuolo
et al. (2014) include Brazil in their analysis, but their analysis of the relative importance
of firm size and firm age is not country specific. Rather, the authors average across all
18 countries in their data. Second, we extend the job creation analysis to account for the
stability of the jobs created. Previous studies on job creation do not account for job stability
(Davis et al., 1996b; Neumark et al., 2011; Haltiwanger et al., 2013; Criscuolo et al., 2014)
and previous studies on job stability do not focus on firm characteristics (Diebold, Neumark
and Polsky, 1997; Marcotte, 1998; Heisz, 2005; Bergmann and Mertens, 2011).
Job creation and stability are especially important in an emerging economy such as
Brazil because formal-sector jobs provide a steady source of good income, serve as a pri-
mary pathway out of poverty,and provide access to legally mandated rights and benefits for
workers (Dix-Carneiro and Kovak, 2017). It is also reasonable to expect that job stability
is even more important for workers in emerging economies as these workers often do not
have access to generous safety nets and job loss could have serious negative consequences
for workers and their families. Employment volatility is also a current policy concern in
Brazil. Brazil has several policies aimed at reducing employment turnover, such as sever-
ance payment programmes and taxes assessed on firms with high turnover rates (Gonzaga,
Maloney and Mizala, 2003; The 50-year Snooze, 2014). However, Brazil’s current policies
address employment volatility after the fact.A more thorough understanding of what types
of firms create stable jobs will help create better-informed policies that can proactively
address high employment volatility.
First, we document the relative importance of firm size and firm age in job creation
and destruction in Brazil. Young, small firms play a large role in employment, job creation,
and job destruction in Brazil. Firm age is a more important determinant of job creation
in Brazil than firm size, but young firms are also more likely to exit the market. This is
consistent with findings for the US (Haltiwanger et al., 2013) and the average across the
countries studied in Criscuolo et al. (2014). Next, we analyse the relationship between
firm size, firm age, and employment volatility. We find that young fir ms in Brazil exhibit
higher levels of employment turnover relative to older firms. Therefore, we also analyse
the relative importance of firm age and firm size in stable employment growth in Brazil.
Firm age is also an important determinant of stable employment growth.Young firms and
large firms have relatively higher stable employment growth rates in comparison to older
©2018 The Department of Economics, University of Oxford and JohnWiley & Sons Ltd
To continue reading
Request your trial