First paper I RAed on. Very nice experience! :)

📝The findings have major implications for entrepreneurs, managers, and policymakers. Striking a balance between the presence of large firms with complementary policies to promote startup hiring may be important to nurture a vibrant entrepreneurial economy.

Before startups hire on formal labor markets, other recruiting channels, e.g. networks, matter. Esp. startups led by women & minorities may face greater challenges in informal hiring and rely more on the labor market, and we find that they are more affected by crowding.

But to the extent that local big firms charge markups—higher prices over cost—they have stronger crowding effect. The rise of big firm markups contributes to the slower growth of startups that has hurt productivity growth in recent years.

🚀However, it's not all gloom for startups. Startups whose business is closely related to that of the large firms can benefit from spillovers and other agglomeration benefits, somewhat softening the impact of hiring competition – so that startups face a trade-off.

We look at job ads to see what happens to startups when big firms increase their hiring in local labor markets. We control for local labor FE and control for possible confounders with an instrumental variable for big firm hiring based on their hiring in other labor markets.

📈 We show that a rise in job ads from large firms leads to a 5-10% increase in startup pay offers for key roles (managerial, STEM, and sales). 📉 This 'crowding out' effect poses a big challenge for startups competing for talent, reducing startup growth by 36%.

Q: Do Big Firms foster or hurt local startups? A: BOTH. Big firms benefit startups in local regions, but big firms crowd out startups in the labor market, raising personnel costs & slowing growth.