Uncertainty and the Employment Dynamics of Small and Large Businesses

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We examine the impact of uncertainty on employment dynamics. Alternative measures of uncertainty are constructed based on the survey of professional forecasters, and regressionbased forecasting models for GDP growth, inflation, S&P500 stock price index, and fuel prices. Our results indicate that greater uncertainty has a negative impact on growth of employment, and the effects are primarily felt by the relatively smaller businesses; the impact on large businesses are generally non-existent or weaker. Our results suggest that to truly understand the effects of uncertainty on employment dynamics, we need to focus on the relatively smaller and entrepreneurial businesses. We discuss implications for the framing of economic policy. Terms of use: Documents in EconStor mayJEL-Code: L110, D800, O300, G100, L400.

Shocks, uncertainty and regional resilience: The case of Brexit and Scottish SMEs

“…When taken together, the findings within this section lend strong support to previous literature (e.g. Ghosal and Ye, 2015) concerning the negative impacts of uncertainty on SME operations and performance. More specifically, the survey data intimates that innovative and export-oriented Scottish SMEs see Brexit as a major impediment to their business plans, corroborating previous evidence (Brown et al., 2019).…”

“…Extant prior evidence suggests that SMEs may be disproportionately impacted by uncertainty given their lower resiliency to unexpected shocks (Brown et al., 2020; Doshi et al., 2018; Ghosal and Loungani, 2000; Ghosal and Ye, 2015; Lee et al., 2015). Most SMEs are often controlled by resource-constrained entrepreneurs and managers with limited contingency planning or foresight capabilities, making it difficult for such firms to deal with heightened levels of uncertainty (Brown et al., 1998).…”

When the rainy day is the worst hurricane ever: the effects of governmental policies on SMEs during COVID-19

“…Moreover, SMEs are not necessarily able to generate high returns in good times to protect them during economic downturns (Ang et al, 1995 ; Kahl et al, 2003 ; Moskowitz & Vissing-Jørgensen, 2002 ). Thus, a dramatic and sudden loss in the revenue and the related cash inflow can severely affect their ability to function as shown by empirical evidence (Ang, 1991 , 1992 ; Cressy, 2006 ; Ghosal & Ye, 2015 ) and further confirmed in the case of the COVID-19 crisis by empirical evidence from Northern Italy (Organisation for Economic Cooperation & Development, 2020 ), the UK (Albonico et al, 2020 ) and the US (Fairlie & Fossen, 2021 ). Third, previous studies show that SMEs tend to hold low levels of cash compared to large firms because of their reduced dimension (Belghitar & Khan, 2013 ; Myers & Majluf, 1984 ).…”

Corruption level and uncertainty, FDI and domestic investment

“…It has been demonstrated that an increase in inflation uncertainty may hinder investments (Huizinga, 1993). We construct inflation uncertainty following Ghosal and Ye (2015), as the squared residual from an autoregressive (AR) (2) forecasting model of inflation. Finally, we construct Corruption Uncertainty, Judiciary Uncertainty and Financial Uncertainty from several waves of the BEEPS, conducted jointly by the EBRD and the World Bank.…”