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The Role of Nonemployers in Business Dynamism and Aggregate Productivity

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  • Pedro Bento
  • Diego Restuccia

Abstract

A well-documented observation of the U.S. economy in the last few decades has been the steady decline in the net entry rate of employer firms, a decline in business dynamism, suggesting a possible connection with the recent slowdown in aggregate productivity growth. We consider the role of nonemployers, businesses without paid employees, in business dynamism and aggregate productivity. Notwithstanding the decline in the growth of employer firms, we show that the total number of firms, which includes nonemployer businesses, has increased in the U.S. economy since the early 1980s. We interpret this trend, along with the evolution of the employment distribution across firms, through the lens of a standard theory of firm dynamics. The model implies that firm dynamics have contributed to an average annual growth rate of aggregate productivity of at least 0.26% since the early 1980s, over one quarter of the productivity growth of 1% in the data. Further, our implied measure of productivity growth moves closely over time with measured productivity growth in the data.

Suggested Citation

  • Pedro Bento & Diego Restuccia, 2019. "The Role of Nonemployers in Business Dynamism and Aggregate Productivity," NBER Working Papers 25998, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:25998
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    References listed on IDEAS

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    1. Pedro Bento & Diego Restuccia, 2017. "Misallocation, Establishment Size, and Productivity," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(3), pages 267-303, July.
    2. Pedro Bento & Diego Restuccia, 2018. "On Average Establishment Size across Sectors and Countriesy," NBER Working Papers 24968, National Bureau of Economic Research, Inc.
    3. Jason Furman & Peter Orszag, 2018. "Slower Productivity and Higher Inequality: Are They Related?," Working Paper Series WP18-4, Peterson Institute for International Economics.
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    8. Li, Huiyu, 2017. "How Does Business Dynamism Link to Productivity Growth?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    9. Pedro Bento, 2016. "Competition, Innovation, and the Number of Firms," Working Papers 20160608-001, Texas A&M University, Department of Economics.
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    More about this item

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada

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