Working Paper: NBER ID: w29479
Authors: Adrien Bilal; Niklas Engbom; Simon Mongey; Giovanni L. Violante
Abstract: This paper evaluates the impact of slowing economic growth on labor market dynamism and misallocation. It provides a model of endogenous growth via imitation in a frictional labor market. The framework accounts for rich data on worker job-to-job transitions as well as stochastic and lifecycle properties of firm growth and job reallocation. High productivity entrants gradually replace obsolescing incumbents by poaching their workers, a process that is intermediated via a frictional labor market. When the likelihood of entrants imitating technologies in the tail of the distribution falls (ideas are harder to find), so does growth. Consistent with US data over the past 30 years, firm entry, incumbents’ employment response to productivity shocks, and job-to-job transitions decline, while the share of old firms increases. With lower imitation, however, there is less misallocation, because the slower aggregate rate of obsolescence induces productive firms to invest more in costly hiring and grow faster to their optimal size.
Keywords: labor market dynamics; economic growth; imitation; frictional labor market; job transitions
JEL Codes: E23; E24; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| slowdown in growth (O49) | decline in job-to-job transitions (J62) |
| slowdown in growth (O49) | decline in firm entry rates (L26) |
| decrease in likelihood of successful imitation (L15) | slowdown in growth (O49) |
| decrease in likelihood of successful imitation (L15) | decrease in productivity of new entrants (J24) |
| decrease in productivity of new entrants (J24) | slower rate of job reallocation (J63) |
| slower rate of job reallocation (J63) | increase in share of employment in older firms (L26) |
| decline in imitation (O39) | lower misallocation (D61) |
| lower misallocation (D61) | slower rate of obsolescence (L15) |
| slower rate of obsolescence (L15) | more investment in hiring by productive firms (J23) |
| slowdown in growth (O49) | decrease in dispersion of marginal product of labor across firms (J79) |
| slowdown in growth (O49) | increase in correlation between firm size and productivity (L25) |
| increase in correlation between firm size and productivity (L25) | higher overall output (E23) |