Abstract
Using data on the universe of taxable retail sales, retail firm start-ups, and retail firm exits in Iowa from 1992 through 2011, we test whether patterns of retail firm entry and exit are consistent with churning. Consistent with churning, the same factors that increase retail sales in a local market also increase new retail firm entry and either increase or do not affect retail firm exit. Evidence suggests that there is more churning in urban than in rural markets. Similar evidence is found using a sample of national firm entry and exit into local markets. If churning increases productivity growth, then the greater churning rate in urban markets is another source of agglomeration advantages in thick markets.
Highlights
The United States has long been characterized as benefiting from a dynamic and flexible labor market (Davis et al, 1998)
We show that the rate of both firm entry and firm exit is highest in metropolitan markets compared to rural markets
This study identifies distinctions in entrepreneurial decision-making between thin rural markets and thick urban markets
Summary
The United States has long been characterized as benefiting from a dynamic and flexible labor market (Davis et al, 1998). ARTZ ET AL: CHURNING IN RURAL AND URBAN RETAIL MARKETS are many more gross separations and accessions than necessary to fill the net growth in job vacancies. This churning is concentrated among younger firms that are responsible for a disproportionate share of both gross job creation and job destruction. Alon et al (2018) showed that the slowdown of firm entry and exit and the subsequent aging of firms has put a drag on productivity growth in the U.S. This study examines churning of entering and exiting retail firms rather than focusing on labor market hires and separations. To the extent that higher labor market and firm churn rates have been associated with faster productivity growth, these findings imply that faster churn rate is another source of agglomeration advantages in thick markets
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