New firm formation and regional employment in Russia: Direct and indirect effects

Studies of employment growth factors are more relevant during crises. Review of foreign studies and analysis of Russian data in 2005-2018 using a distributed lag model based on the Almon method shows that there are multidirectional short-term direct and longer-term indirect effects of starting a business on employment growth. The regional context is important, and the prevalence of one effect over another and the direction of influence of additional factors depend on the type of region. Thus, for large agglomerations with high labor productivity and an active SME sector, an S-shaped lag structure of the dependence of employment on the creation of new firms was revealed: with short-term positive, medium-term negative, and further positive effects. For regions with low urbanization, labor productivity and a less active SME sector, the most striking is the short-term positive impact on employment from the opening of firms, which is replaced by a negative one after 2-3 years. At the same time, in the latter regions, the total impact may be higher than in the former, and on average, a new firm (per 1,000 people in the workforce) leads to an increase in employment by 0.56 p.p. This provides grounds for some policy recommendations.