Boom Town Business Dynamics

Abstract

The shale oil and gas boom in the U.S. provides a unique opportunity to study economic growth in a "boom town" environment, to derive insights about economic expansions more generally, and to obtain clean identification of the causal effects of economic growth on specific margins of business adjustment. The creation of new business establishments-separate from the expansion of existing establishments-accounts for a disproportionate share of the multi-industry employment growth sparked by the shale boom, an intuitive but not inevitable empirical result that is broadly consistent with canonical models of firm dynamics. New firms, in particular, contribute nearly half of the cumulative economic growth resulting from the shale boom.

The Impact of Business Cycle Conditions on Firm Dynamics and Composition

“…But, in the heterogeneous entrant model, a positive aggregate shock lowers the productivity threshold of entry, thereby inducing lower-quality firms to enter. There will be procyclical entry and a permanent increase in the number of incumbents, but because of selection, entrants have low productivity, and the average entrant is smaller (Decker, McCollum, and Upton Jr. 2022). My empirical exercises support the presence of cyclical selection effects by comparing the frailty of expansionary and recessionary cohorts as well as measuring the net effect on startup size and capital.…”

“…16 In these studies, market segments are defined as clusters of regions (county, state, etc.) and industries, as well as enterprise forms if available; see, for instance, Gourio, Messer, and Siemer (2016); Moreira (2017); Decker, McCollum, and Upton Jr. (2022). land, public utilities, and transportation (e.g., railroads and steamships).…”

“…Positive shocks will still cause an increase in the number of firms, but this can be due to a drop in exit and not a surge in entry. SeeDecker, McCollum, and Upton Jr. (2022) for a thoughtful discussion on the entry margin's sensitivity.https://doi.org/10.1017/S0022050723000086 Published online by Cambridge University Press…”

State-Level Trucking Employment and the Covid-19 Pandemic in the U.S: Understanding Heterogenous Declines and Rebounds

“…whether increased activity in the demand-generating sector will increase employment in the focal sector (by creating more need for workers due to higher demand) or decrease employment (by claiming a greater share of the labor pool). Based on empirical findings looking at demand propagation in supply chains (Carvalho et al 2021;Decker et al 2022;Fujii 2016), we expect that the demand-generating mechanism can override the labor poaching mechanism, suggesting an important boundary condition (Goldsby et al 2013) for FMR. Second, we suggest the nature of this demand-generating mechanism as it pertains to trucking will differ based on the extent demand requires short versus long hauls.…”

“…As noted by Rickman and Wang (2020) and Allcott and Keniston (2018), sharp increases in energy prices result in energy booms that significantly increase demand for activities that support energy exploration, such as demand for warehouses that support fracking activity (Wang 2019). For example, Decker et al (2022) document that geographic areas with extensive shale oil drilling saw a substantial increase in business formation of transportation and warehousing firms vis-à-vis a set of control counties that did not see an increase in shale oil drilling. This suggests that the freight generating demand of natural resource extraction was quite strong, and the fact that employment in transportation and warehouses increased in shale oil regions further suggests that this demand generating mechanism 4 Natural resource extraction includes agriculture activities as well as mining activity.…”