Working Paper: NBER ID: w25998
Authors: Pedro Bento; Diego Restuccia
Abstract: The well-documented decline in business dynamism, measured by the net entry rate of employer firms, has been proposed as an explanation for the productivity growth slowdown in the United States. We assess the role of nonemployers, firms without paid employees, in business dynamism and aggregate productivity. Including nonemployers, the total number of firms has instead increased since the early 1980s, which in the context of a standard model of firm dynamics implies an annualized growth of measured aggregate productivity of 0.22%, one-quarter of the productivity growth in the data. Further accounting for time changes in the share of nonemployer firms and in the distribution of employment across firms, we find that productivity growth is even higher (0.47% per year). The productivity growth slowdown is not due to changes in net firm entry.
Keywords: business dynamism; aggregate productivity; nonemployers; firm dynamics
JEL Codes: E02; E1; O1; O4; O51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| number of firms (including nonemployers) (L26) | aggregate productivity (E23) |
| number of firms (including nonemployers) (L26) | total factor productivity (TFP) (D24) |
| number of employer firms (L26) | aggregate productivity (E23) |
| decline in entry costs (D43) | productivity increase (O49) |
| time changes in the share of nonemployer firms (J29) | productivity growth rate (O49) |