This paper shows that applying simple employment-weighted OLS estimation to Davis – Haltiwanger – Schuh (1996) firm level
job creation rates taking the values 2 and –2 for entering and exiting firms, respectively, provides biased and inconsistent
parameter estimates. Consequently, we argue that entries and exits should be analysed separately and propose an alternative,
consistent estimation procedure assuming that the size of continuing firms follows a lognormal distribution. A small-scale
Monte Carlo analysis confirms the analytical results. Using a sample of Austrian firms, we demonstrate that the impact of
small firms on net job creation is substantially underestimated when applying employment-weighted OLS estimation.
Keywords:Job creation, DHS growth rate, firm size, firm age, Monte Carlo simulation
Forschungsbereich:Strukturwandel und Regionalentwicklung – Industrieökonomie, Innovation und internationaler Wettbewerb