Declining Dynamism, Increasing Markups and Missing Growth: The Role of the Labor Force

Michael Peters and Conor Walsh
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Michael Peters: Yale University
Conor Walsh: Yale University

No 658, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: A growing body of empirical research highlights substantial changes in the US economy during the last three decades. Business dynamism – namely job reallocation, firm entry and creative destruction – is declining. Market power, as measured by markups and industry concentration, seems to be on the rise. Aggregate productivity growth is sluggish. We show that declines in the rate of growth of the labor force can qualitatively account for all of these features in a standard model of firm-dynamics. Despite its richness we can characterize the link between population growth and dynamism, markups and growth analytically. When we calibrate the model to the universe of U.S. Census data, the labor force channel can explain a large fraction of the aggregate trends.

Date: 2019
New Economics Papers: this item is included in nep-com, nep-dem, nep-dge and nep-tid
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