Directions for the Sustainable Development and Competitiveness of Regions
New Horizons in Regional Science series
Edited by Charlie Karlsson, Börje Johansson and Roger R. Stough
Chapter 5: Labor mobility and entrepreneurship: who do new firms employ?
During recent decades, the importance of new firm formation has received increased attention from both researchers and policy makers. The main reason for this interest is the strong belief that new firms are of particular importance for future economic growth and employment. Several studies can, at least from a long-term perspective, establish a positive relationship between new firm formation, productivity and economic growth (see e.g. summaries by Praag and Versloot, 2007 and Karlsson and Nyström, 2008). How do these improvements in productivity and growth through the creation of new firms occur explicitly? One frequent explanation is that many new firms are established based on innovations. Hence new firms are claimed to be a crucial link to commercialization of innovations (Acs et al., 2004). In addition, it is argued that the establishment of new firms is an important part of the structural change process since it represents reallocation of resources, which may result in a more efficient utilization of resources (Schumpeter, 1934 and 1942). Furthermore, labor mobility is an important source of knowledge spillovers. According to the theories of endogenous growth, developed by Romer (1986 and 1990) and Lucas (1988), the interactions between individuals, which result in knowledge spillovers, are crucial to increased productivity and enhanced economic growth.
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