**6. Conclusions**

The findings in this paper highlight that risk in the local labor market improves the survival of new businesses, which provides much needed resilience to the local economy. This dynamic was evident in MSAs when investigating the responses of new businesses during the recent recessions of 2001 and 2007–2009.

The impact of macroeconomic shock on the local labor market, captured through volatility in employment-based and income-based measures, likely influences employees' decisions when evaluating the risk–return trade-off involved in quitting existing employment. The turmoil in the local labor market encourages employees to continue with their present employment and postpone any career-related decisions (until the economic outlook gets better). This shift in employee behavior, even if temporary, is beneficial for new businesses, as it shields the business from monetary and non-monetary costs associated with high employee turnover. Many new businesses struggle with numerous challenges,

which compound exponentially due to the exogenous shock. The savings on such costs and the continued contribution of valued employees in business operations are nothing short of a lifeline for a new business.

This paper contributes to the literature focusing on the role of human capital in regional economic growth. Research on the role of human capital in firm survival is predominantly anchored in the entrepreneur's personal characteristics. Our endeavor contributes to this literature by uniquely applying portfolio theory in the context of employee-centric risk and return trade-off in the regional unit, also highlighting the contribution of employees to new business survival.

The findings from this paper may help policymakers design economic development policies tailor-made to the needs of the regional unit. The targeted approach may help in the more efficient use of tax dollars compared to the effect from applying a blanket policy. The Paycheck Protection Program (PPP) implemented by the Federal Government in response to the economic downturn caused by the COVID-19 pandemic is a good example of using a targeted approach to support local businesses. Not only does this help businesses survive the downturn and keep their employees on the payroll, but it also ensures business establishments are ready to participate in and contribute to a faster economic recovery. In the absence of this program, many more business establishments would have closed down, and consequently, the post-pandemic recovery would have been more painful and elongated.

We find encouraging results to support our hypothesis, and expect potential opportunities for further research on this topic. Our analysis is limited to the 2001 and 2007–2009 recessions, while countries all across the world are experiencing severe economic shock due to the widespread pandemic. Although the COVID-19 pandemic is a very different type of economic downturn, similar analyses of the COVID recession should provide promising opportunities to investigate its impact on the dynamics of the local labor market, and further, on business survival.

We use counties as a regional unit to capture the dynamics of the local labor market for our analysis. The selection of counties for the analysis can be questioned on the ground that they are not perfect reflections of the prevalent dynamics in the local labor market. For further research, we plan to incorporate granular data from both MSAs and commuting zones into our analyses. As discussed above, reverse causality or endogeneity is likely to be present, so future work needs to incorporate an appropriate identification structure for addressing these confounding relationships.

**Author Contributions:** B.G.: formal analysis, investigation, resources, methodology, data curation, original draft preparation; S.W.: conceptualization, supervision, writing—review and editing. Both authors have read and agreed to the published version of the manuscript.

**Funding:** This research received no external funding.

**Institutional Review Board Statement:** Not applicable in this study.

**Informed Consent Statement:** Not Applicable.

**Data Availability Statement:** Data presented in this study are available on request from the corresponding author. Detailed information about the data sources is provided in the Appendix A (Table A2).

**Acknowledgments:** The authors would like to acknowledge the valuable contribution of faculty members at Department of Economics, CSU, and external stakeholders at various stages of this endeavor.

**Conflicts of Interest:** The authors declare no conflict of interest.
