The Local Origins of Business Formation: Entry as a Two-Stage Process
July 2023
Working Paper Number:
CES-23-34R
Abstract
The business entry literature typically observes firms only at the first hire. We provide a new perspective using linked administrative microdata tracking the universe of U.S. business applications and their transition into employer firms. We model entry as a two-stage process: pursuit of a business idea (proxied by a business application) and implementation (transition). Results show these margins are distinct and associate differently with local conditions. While both margins matter, high-startup locations are characterized by high application intensity, whereas low-startup locations exhibit low transition rates, suggesting geographic disparities in entry arise from different dynamics at each stage of the entrepreneurial process.
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:
organizational,
acquisition,
entrepreneurial,
startup,
venture,
entrepreneur,
business startups,
entrepreneurship,
proprietor,
incorporated,
bank,
hiring,
workforce,
startup firms,
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immigration,
nonemployer businesses,
banking,
transition,
employees startups,
applicant
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American Economic Association,
Internal Revenue Service,
Federal Reserve Bank,
Longitudinal Business Database,
Retirement History Survey,
Employer Identification Numbers,
Georgetown University,
Economic Census,
Department of Homeland Security,
North American Industry Classification System,
American Community Survey,
Census Bureau Business Register,
Census Bureau Disclosure Review Board,
Business Dynamics Statistics,
Business Formation Statistics
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