Does Firm Heterogeneity Matter for Aggregate Dynamics? Evidence from the Allocation of Capital and Labor

Thomas Winberry and Pablo Ottonello
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Thomas Winberry: University of Chicago

No 578, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: It is well-documented that there is tremendous heterogeneity in firms’ productivity, investment, and hiring, implying the allocation of resources is important in determining aggregate dynamics. In this project, we measure the dynamics of the allocation of capital and labor across firms and use this measurement to understand how heterogeneity matters for aggregate business cycles. We measure the allocation of resources using the distribution of marginal products across firms. Preliminary empirical results using Compustat data suggest that the dispersion of the marginal product of capital is strongly countercyclical, while the dispersion in the marginal product of labor is acyclical, implying that models with frictions to capital adjustment are most promising for explaining the data. To discriminate between particular models, we plan to quantitatively map their predictions for the distribution in terms of informative micro-level wedges, in the spirit of Hsieh and Klenow (2009).

Date: 2016
New Economics Papers: this item is included in nep-bec, nep-cse, nep-eff and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:578

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