Working Paper: NBER ID: w29414
Authors: Simcha Barkai; Stavros Panageas
Abstract: Young firms' contribution to aggregate employment has been underwhelming. However, a similar trend is not apparent in their contribution to aggregate sales or aggregate stock market capitalization. We study the implications of the arrival of “low marginal - high average” revenue-product-of-labor firms in a stylized model of dynamic firm heterogeneity, and show that the model can account for a large number of facts related to the decline in “business dynamism”. We study the long-term implications of the decline in business dynamism on the economy by providing analytical results that connect the decline in dynamism to the eventual decline of consumption.
Keywords: No keywords provided
JEL Codes: D24; E23; E24; E25; G24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| underperforming job creation by young firms (L26) | strong contributions to aggregate sales and stock market capitalization (G10) |
| higher average revenue product of labor (ARPL) in recent cohorts of young firms (J39) | lower marginal revenue product of labor (MRPL) in recent cohorts of young firms (L26) |
| arrival of firms with higher average revenue product of labor (ARPL) and lower marginal revenue product of labor (MRPL) (R32) | decline in business dynamism (L16) |
| decline in business dynamism (L16) | significant declines in employment and output for young firms (L26) |
| decline in young firm output (D25) | changes in consumption dynamics (E21) |
| overall decline in business dynamism (L16) | increasing economic rents (D33) |
| increasing economic rents (D33) | long-term implications for steady-state consumption and economic health (D15) |