Showing papers by "Erik Hurst published in 2011"

What Do Small Businesses Do

Abstract: We show that most small business owners are very different from the entrepreneurs that economic models and policymakers often have in mind. Using new data that sample entrepreneurs just before they start their businesses, we show that few small businesses intend to bring a new idea to market or to enter an unserved market. Instead, most intend to provide an existing service to an existing market. Further, we find that most small businesses have little desire to grow big or to innovate in any observable way. We show that such behavior is consistent with the industry characteristics of the majority of small businesses, which are concentrated among skilled craftspeople, lawyers, real estate agents, health care providers, small shopkeepers, and restaurateurs. Lastly, we show that nonpecuniary benefits (being one's own boss, having flexibility of hours, and the like) play a first-order role in the business formation decision. Our findings suggest that the importance of entrepreneurial talent, entrepreneurial luck, and financial frictions in explaining the firm size distribution may be overstated. We conclude by discussing the potential policy implications of our findings.

Time Use During Recessions

Abstract: We use data from the American Time Use Survey (ATUS), covering both the recent recession and the pre-recessionary period, to explore how foregone market work hours are allocated to other activities over the business cycle. Given the short time series, it is hard to distinguish business cycle effects from low frequency trends by simply comparing time spent on a given category prior to the recession with time spent on that category during the recession. Instead, we identify the business cycle effects on time use using cross state variation with respect to the severity of the recessions. We find that roughly 30% to 40% of the foregone market work hours are allocated to increased home production. Additionally, 30% of the foregone hours are allocated to increased sleep time and increased television watching. Other leisure activities absorb 20% of the foregone market work hours. We use our evidence from the ATUS to calibrate and test the predictions of workhorse macroeconomic models with home production. We show that the quantitative implications of these models regarding the allocation of time over the business cycle matches reasonably well the actual behavior of households.

What Do Small Businesses Do

Abstract: In this paper, we show that most small business owners are very different from the entrepreneurs that economic models and policy makers often have in mind. Using new data that samples early stage entrepreneurs just prior to business start up, we show that few small businesses intend to bring a new idea to market. Instead, most intend to provide an existing service to an existing market. Further, we find that most small businesses have little desire to grow big or to innovate in any observable way. We show that such behavior is consistent with the industry characteristics of the majority of small businesses, which are concentrated among skilled craftsmen, lawyers, real estate agents, doctors, small shopkeepers, and restaurateurs. Lastly, we show non pecuniary benefits (being one's own boss, having flexibility of hours, etc.) play a first-order role in the business formation decision. We then discuss how our findings suggest that the importance of entrepreneurial talent, entrepreneurial luck, and financial frictions in explaining the firm size distribution may be overstated. We conclude by discussing the potential policy implications of our findings.

Marital Sorting and Parental Wealth

Abstract: Using data from the Panel Study of Income Dynamics (PSID), this paper studies the degree to which spouses sort in the marriage market on the basis of parental wealth We estimate a variety of models, including transition matrices, OLS and TSLS models to deal with measurement error in wealth reports Our various results show that men and women in the US marry spouses whose parents have wealth similar to that of their own parents; and are very unlikely to marry persons from very different parental wealth backgrounds This effect is present in the population as a whole, within racial groups, and especially in the tails of the distribution Our preferred estimates indicate that the correlation in log wealth between own and spouse's parents wealth is around 04 We show that education accounts for only one-quarter of this sorting, and also show that selection into and out marriage by parental wealth does not appreciably bias our results

Time Use During Recessions

Abstract: We use data from the American Time Use Survey (ATUS), covering both the recent recession and the pre-recessionary period, to explore how foregone market work hours are allocated to other activities over the business cycle. Given the short time series, it is hard to distinguish business cycle effects from low frequency trends by simply comparing time spent on a given category prior to the recession with time spent on that category during the recession. Instead, we identify the business cycle effects on time use using cross state variation with respect to the severity of the recessions. We find that roughly 30% to 40% of the foregone market work hours are allocated to increased home production. Additionally, 30% of the foregone hours are allocated to increased sleep time and increased television watching. Other leisure activities absorb 20% of the foregone market work hours. We use our evidence from the ATUS to calibrate and test the predictions of workhorse macroeconomic models with home production. We show that the quantitative implications of these models regarding the allocation of time over the business cycle matches reasonably well the actual behavior of households.

Who Files for Bankruptcy? State Laws and the Characteristics of Bankrupt Households

Abstract: The characteristics of bankrupt households (such as income and asset levels) vary widely across states. This paper shows that these variations can be attributed to state exemption laws and state garnishment laws. I develop a theoretical model in which households choose between repayment, bankruptcy, and informal bankruptcy (non-repayment without the benefit of the formal bankruptcy process). The model predicts that high asset households have a higher probability of filing for bankruptcy in states with high exemption levels while low income households have a higher probability of filing for bankruptcy in states with high garnishment rates. These predictions are confirmed using a new household level dataset which finds, for example, that households with $225,000 in home equity are 1.7 times more likely to file for bankruptcy in a state with a high exemption level and that households earning less than $10,000 per year are 1.6 times more likely to file for bankruptcy in a state with a high garnishment rate.

Marital Sorting and Parental Wealth

Abstract: Using data from the Panel Study of Income Dynamics (PSID), this paper studies the degree to which spouses sort in the marriage market on the basis of parental wealth. We estimate a variety of models, including transition matrices, OLS and TSLS models to deal with measurement error in wealth reports. Our various results show that men and women in the U.S. marry spouses whose parents have wealth similar to that of their own parents; and are very unlikely to marry persons from very different parental wealth backgrounds. This effect is present in the population as a whole, within racial groups, and especially in the tails of the distribution. Our preferred estimates indicate that the correlation in log wealth between own and spouse's parents wealth is around 0.4. We show that education accounts for only one-quarter of this sorting, and also show that selection into and out marriage by parental wealth does not appreciably bias our results.