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Microsimulation of Businesses in ILUMASS

Part 2: Firmography

Rolf Moeckel and Michael Wegener

Workshop of the Land Use Transportation Modelling Group University College London, 2 July 2005

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Theory of Firmography

Cohen, Cyert (1975): Theory of the Firm

Birch (1979): The Job Generation Process

Freeman, Hannan (1983): Organizational Populations

Willeboordse (1986): Towards a 'demogra-phy' of firms

Cyert, March (1992): A behavioral theory of the firm

Carroll, Hannan (1999): The Demography of Corporations and Industries

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Firmography

Businesses are updated every simulation period.

Events include:- new businesses are established- employers hire or fire employees- unsuccessful firms run out of businesses

Events are simulated by Markov Models in random order.

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Sectoral Change: Employment

2010 2020 2030

Service Sector

Industry

Agriculture

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Boom

Boom

Regression

Regression

Economic Waves: Employment Change

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Change of Number of Jobs

The sectoral change and the economic prosperity determine the number of jobs.

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Change of number of jobs

+ Establishment of new firms

- Decline of existing firms

+ Growth of existing firms

- shrinking of existing firms

75 Percent25 Percent

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Estimating Number of Birth and Declines

The change of number of jobs per business type is estimated based on - sectoral change, - economic prosperity, and - number of highly-qualified people.

The three elements are aggregated by Cobb-Douglas-Function.

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Share of Highly-Educated People

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Estimating Number of Birth and Declines

The employment change by birth and de-clines is estimated based on sectoral change, economic prosperity, and number of highly-qualified people.

Estimation for business type x: + 2 %

Reg. data of new establishments:10 %Reg. data of declining businesses:6 %Resulting Change: + 4 %

Estimation new establishments: 9 %Estimation declining businesses:7 %Resulting Change + 2 %

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New Business Establishments

New establishments have to find a location even if the site characteristics are not favou-rable for the business.

A few smaller businesses are located at the entrepreneur's home.

New businesses tend to have rather few employees.

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Size of New Business Establishments

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Decline of Businesses

Every simulation period some firms run out of business, depending on the structural change and economic prosperity.

Mostly, small business are closed. Larger businesses try to absorb the economic recession by reducing the number of em-ployees.

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Size of Declining Businesses

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Change of Number of Employees

Businesses may grow or shrink by hiring or firing employees.

Probabilities for growing and shrinking are estimated based on sectoral change and economic prosperity.

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Estimating Change of Business Size

Depending on the overall economic trend em-ployers hire or fire employees.

no change 8 % growth4 % decline

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Model run

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