Older and Slower: The Startup Deficit's Lasting Effects on Aggregate Productivity Growth
June 2018
Working Paper Number:
CES-18-29
Abstract
We investigate the link between declining firm entry, aging incumbent firms and sluggish U.S. productivity growth. We provide a dynamic decomposition framework to characterize the contributions to industry productivity growth across the firm age distribution and apply this framework to the newly developed Revenue-enhanced Longitudinal Business Database (ReLBD). Overall, several key findings emerge: (i) the relationship between firm age and productivity growth is downward sloping and convex; (ii) the magnitudes are substantial and significant but fade quickly, with nearly 2/3 of the effect disappearing after five years and nearly the entire effect disappearing after ten; (iii) the higher productivity growth of young firms is driven nearly exclusively by the forces of selection and reallocation. Our results suggest a cumulative drag on aggregate productivity of 3.1% since 1980. Using an instrumental variables strategy we find a consistent pattern across states/MSAs in the U.S. The patterns are broadly consistent with a standard model of firm dynamics with monopolistic competition.
Document Tags and Keywords
Keywords
Keywords are automatically generated using KeyBERT, a powerful and innovative
keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant
keywords.
By analyzing the content of working papers, KeyBERT identifies terms and phrases that capture the essence of the
text, highlighting the most significant topics and trends. This approach not only enhances searchability but
provides connections that go beyond potentially domain-specific author-defined keywords.
:
macroeconomic,
estimating,
industrial,
sale,
productivity growth,
growth,
entrepreneurship,
industry productivity,
monopolistic,
growth productivity,
longitudinal,
recession,
employment growth,
revenue,
spillover,
wages productivity,
industry wages,
gdp,
productivity dynamics,
declining,
decade,
aging
Tags
Tags are automatically generated using a pretrained language model from spaCy, which excels at
several tasks, including entity tagging.
The model is able to label words and phrases by part-of-speech,
including "organizations." By filtering for frequent words and phrases labeled as "organizations", papers are
identified to contain references to specific institutions, datasets, and other organizations.
:
Metropolitan Statistical Area,
Internal Revenue Service,
Bureau of Labor Statistics,
Ordinary Least Squares,
Labor Productivity,
Bureau of Economic Analysis,
Census Bureau Longitudinal Business Database,
Longitudinal Business Database,
Employer Identification Numbers,
New York University,
North American Industry Classification System,
Census Bureau Business Register,
Business Register,
State Energy Data System,
Business Dynamics Statistics,
Census Bureau Business Dynamics Statistics
Similar Working Papers
Similarity between working papers are determined by an unsupervised neural
network model
know as Doc2Vec.
Doc2Vec is a model that represents entire documents as fixed-length vectors, allowing for the
capture of semantic meaning in a way that relates to the context of words within the document. The model learns to
associate a unique vector with each document while simultaneously learning word vectors, enabling tasks such as
document classification, clustering, and similarity detection by preserving the order and structure of words. The
document vectors are compared using cosine similarity/distance to determine the most similar working papers.
Papers identified with 🔥 are in the top 20% of similarity.
The 10 most similar working papers to the working paper 'Older and Slower: The Startup Deficit's Lasting Effects on Aggregate Productivity Growth' are listed below in order of similarity.
-
Working PaperDemographic Origins of the Startup Deficit🔥
July 2019
Working Paper Number:
CES-19-21
We propose a simple explanation for the long-run decline in the startup rate. It was caused by a slowdown in labor supply growth since the late 1970s, largely pre-determined by demographics. This channel explains roughly two-thirds of the decline and why incumbent firm survival and average growth over the lifecycle have been little changed. We show these results in a standard model of firm dynamics and test the mechanism using shocks to labor supply growth across states. Finally, we show that a longer startup rate series imputed using historical establishment tabulations rises over the 1960-70s period of accelerating labor force growth.View Full Paper PDF
-
Working PaperThe Role of Start-Ups in StructuralTransformation
January 2016
Working Paper Number:
CES-16-38
The U.S. economy has been going through a striking structural transformation'the secular reallocation of employment across sectors'over the past several decades. We propose a decomposition framework to assess the contributions of various margins of firm dynamics to this shift. Using firm-level data, we find that at least 50 percent of the adjustment has been taking place along the entry margin, owing to sectors receiving shares of start-up employment that differ from their overall employment shares. The rest is mostly the result of life cycle differences across sectors. Declining overall entry has a small but growing effect of dampening structural transformation.View Full Paper PDF
-
Working PaperFirm Dynamics, Persistent Effects of Entry Conditions, and Business Cycles
January 2017
Working Paper Number:
CES-17-29
This paper examines how the state of the economy when businesses begin operations affects their size and performance over the lifecycle. Using micro-level data that covers the entire universe of businesses operating in the U.S. since the late 1970s, I provide new evidence that businesses born in downturns start on a smaller scale and remain smaller over their entire lifecycle. In fact, I find no evidence that these differences attenuate even long after entry. Using new data on the productivity and composition of startup businesses, I show that this persistence is related to selection at entry and demand-side channels.View Full Paper PDF
-
Working PaperGrown-Up Business Cycles
October 2015
Working Paper Number:
CES-15-33
We document two striking facts about U.S. firm dynamics and interpret their significance for employment dynamics. The first is the dramatic decline in firm entry and the second is the gradual shift of employment toward older firms since 1980. We show that despite these trends, the lifecycle dynamics of firms and their business cycle properties have remained virtually unchanged. Consequently, aging is the delayed effect of accumulating startup deficits. Together, the decline in the employment contribution of startups and the shift of employment toward more mature firms contributed to the emergence of jobless recoveries in the U.S. economy.View Full Paper PDF
-
Working PaperEntry Costs Rise with Growth
October 2024
Working Paper Number:
CES-24-63
Over time and across states in the U.S., the number of firms is more closely tied to overall employment than to output per worker. In many models of firm dynamics, trade, and growth with a free entry condition, these facts imply that the costs of creating a new firm increase sharply with productivity growth. This increase in entry costs can stem from the rising cost of labor used in entry and weak or negative knowledge spillovers from prior entry. Our findings suggest that productivity-enhancing policies will not induce firm entry, thereby limiting the total impact of such policies on welfare.View Full Paper PDF
-
Working PaperCyclical Reallocation of Workers Across Employers by Firm Size and Firm Wage
June 2015
Working Paper Number:
CES-15-13
Do the job-to-job moves of workers contribute to the cyclicality of employment growth at different types of firms? In this paper, we use linked employer-employee data to provide direct evidence on the role of job-to-job flows in job reallocation in the U.S. economy. To guide our analysis, we look to the theoretical literature on on-the-job search, which predicts that job-to-job flows should reallocate workers from small to large firms. While this prediction is not supported by the data, we do find that job-to-job moves generally reallocate workers from lower paying to higher paying firms, and this reallocation of workers is highly procyclical. During the Great Recession, this firm wage job ladder collapsed, with net worker reallocation to higher wage firms falling to zero. We also find that differential responses of net hires from non-employment play an important role in the patterns of the cyclicality of employment dynamics across firms classified by size and wage. For example, we find that small and low wage firms experience greater reductions in net hires from non-employment during periods of economic contractions.View Full Paper PDF
-
Working PaperBusiness Dynamics Statistics for Single-Unit Firms
December 2022
Working Paper Number:
CES-22-57
The Business Dynamics Statistics of Single Unit Firms (BDS-SU) is an experimental data product that provides information on employment and payroll dynamics for each quarter of the year at businesses that operate in one physical location. This paper describes the creation of the data tables and the value they add to the existing Business Dynamics Statistics (BDS) product. We then present some analysis of the published statistics to provide context for the numbers and demonstrate how they can be used to understand both national and local business conditions, with a particular focus on 2020 and the recession induced by the COVID-19 pandemic. We next examine how firms fared in this recession compared to the Great Recession that began in the fourth quarter of 2007. We also consider the heterogenous impact of the pandemic on various industries and areas of the country, showing which types of businesses in which locations were particularly hard hit. We examine business exit rates in some detail and consider why different metro areas experienced the pandemic in different ways. We also consider entry rates and look for evidence of a surge in new businesses as seen in other data sources. We finish by providing a preview of on-going research to match the BDS to worker demographics and show statistics on the relationship between the characteristics of the firm's workers and outcomes such as firm exit and net job creation.View Full Paper PDF
-
Working PaperImport Competition and Firms' Internal Networks
September 2021
Working Paper Number:
CES-21-28
Using administrative data on U.S. multisector firms, we document a cross-sectoral propagation of the import competition from China ('China shock') through firms' internal networks: Employment of an establishment in a given industry is negatively affected by China shock that hits establishments in other industries within the same firm. This indirect propagation channel impacts both manufacturing and non-manufacturing establishments, and it operates primarily through the establishment exit. We explore a range of explanations for our findings, highlighting the role of within-firm trade across sectors, scope of production, and establishment size. At the sectoral aggregate level, China shock that propagates through firms' internal networks has a sizable impact on industry-level employment dynamics.View Full Paper PDF
-
Working PaperImmigration and Local Business Dynamics: Evidence from U.S. Firms
August 2021
Working Paper Number:
CES-21-18
This paper finds that establishment entry and exit'particularly the prevention of establishment exit'drive immigrant absorption and immigrant-induced productivity increases in U.S. local industries. Using a comprehensive collection of confidential survey and administrative data from the Census Bureau, it shows that inflows of immigrantworkers lead to more establishment entry and less establishment exit in local industries. These relationships are responsible for nearly all of long-run immigrant-induced job creation, with 78 percent accounted for by exit prevention alone, leaving a minimal role for continuing establishment expansion. Furthermore, exit prevention is not uniform: immigrant inflows increase the probability of exit by establishments from low productivity firms and decrease the probability of exit by establishments from high productivity firms. As a result, the increase in establishment count is concentrated at the top of the productivity distribution. A general equilibrium model proposes a mechanism that ties immigrantworkers to high productivity firms and shows how accounting for changes to the firm productivity distribution can yield substantially larger estimates of immigrant-generated economic surplus than canonical models of labor demand.View Full Paper PDF
-
Working PaperEvidence for the Effects of Mergers on Market Power and Efficiency
January 2016
Working Paper Number:
CES-16-43
Study of the impact of mergers and acquisitions (M&As) on productivity and market power has been complicated by the difficulty of separating these two effects. We use newly-developed techniques to separately estimate productivity and markups across a wide range of industries using confidential data from the U.S. Census Bureau. Employing a difference-in-differences framework, we find that M&As are associated with increases in average markups, but find little evidence for effects on plant-level productivity. We also examine whether M&As increase efficiency through reallocation of production to more efficient plants or through reductions in administrative operations, but again find little evidence for these channels, on average. The results are robust to a range of approaches to address the endogeneity of firms' merger decisions.View Full Paper PDF
