Assistant Professor @ University of Bonn


Working Papers

The Growth Potential of Startups Over the Business Cycle

with Vincent Sterk, September 2016
also available as Center for Macroeconomics Discussion Paper 2014-03
2nd revision requested at the American Economic Review
[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.

Unemployment and the Labor Share

with Sephorah Mangin, September 2016
revision requested at the Journal of Monetary Economics
[View abstract]

This paper develops a dynamic search and matching model in which heterogeneous firms compete directly to hire workers. The degree of firm competition at the time of hiring simultaneously endogenizes both average match productivity and the division of output between workers and firms. Because wages of existing matches partly reflect past labor market conditions, a positive TFP shock leads to a drop in the aggregate labor share, making it counter-cyclical. However, greater competition decreases unemployment and increases labor's share of output among new firms. As more firms enter, the aggregate labor share rises and eventually overshoots its initial level, as observed in the data.

Creative Destruction and Uncertainty

September 2016
Available as a CEPR Discussion Paper 11296
Awarded the Daimler und Benz Stipendium (2014-2015)

[View abstract]

Uncertainty rises in recessions. But does uncertainty cause downturns or vice versa? This paper argues that rather than one causing the other, the coincidence of both events is to a large extent driven by a third common force: technology growth. Indeed, uncertainty and technology growth correlate positively in the data, a novel stylized fact. I show analytically that when technology adoption is gradual, expansions of the technological frontier widen the dispersion of firm-level productivity shocks, a benchmark measure of uncertainty. In a general equilibrium model of endogenous firm dynamics and innovation, technological expansions spur a process of creative destruction, generate a temporary downturn and render uncertainty counter-cyclical. The model's predictions find support in U.S. data showing that up to 40 percent of uncertainty fluctuations are driven by technology growth.

Lost Generations of Firms and Aggregate Labor Market Dynamics

September 2015 (under review)
Previously circulated under the title "Firm Age, Business Cycles and Aggregate Labor Market Dynamics"
CEF Student Prize, 1st place, Prague, Czech Republic, 2012
Young Economist of the Year, 2nd place, awarded by the Czech Economic Society, 2012

[View abstract]

Can the unprecedented lack of startups during the Great Recession in the U.S. negatively impact the economy in future years? A structural model of rm dynamics and a frictional labor market suggests that, despite strong general equilibrium e ects in the short run, a lost generation of rms creates a persistent dent in the employment potential of the economy. Estimating the model using aggregated rm data shows that had rm 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.

Publications in Refereed Journals

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

Review of Economic Dynamics, 21, July 2016
[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, Quantitative Economics, 5 (2), July 2014
[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 o if the job was not discontinued, that is, a ected jobs have strictly positive surplus values. Similarly, booms make it possible for more jobs to overcome the agency problem. These e ects do not o set 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 nd estimates for the cost of business cycles ranging from 2.03% to 12.7% of GDP.

Match Efficiency and Firms' Hiring Standards

Journal of Monetary Economics, 62, March 2014
[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

Prague Economic Papers, 2, 2006

[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

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)


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

The Nature of Firm Growth, with Benjamin Pugsley and Vincent Sterk

Aggregate Effects of Youth Unemployment, Awarded the DFG Research Fellowship (2016-2017)

Ageing, Entrepreneurship and Macroeconomic Performance, Awarded the Modigliani Research Grant (2016-2017), with Marek Ignazsek

The Bad-Job Trap, with Benjamin Hartung

University of Bonn
Department of Economics
Institute for Macroeconomics and Econometrics
Kaiserplatz 7-9
53113 Bonn
Universiteit of Bonn

© Petr Sedláček