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Slow Convergence in Economies with Organization Capital

Erzo Luttmer

No 585, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: Most firms begin very small, and large firms are the result of typically decades of persistent growth. This growth can be understood as the result of some form of organization capital accumulation. In the US, the distribution of firm size k has a right tail only slightly thinner than 1/k. This is shown to imply that incumbent firms account for most aggregate organization capital accumulation. And it implies potentially extremely slow aggregate convergence rates. A benchmark model is proposed in which managers can use incumbent organization capital to create new organization capital. Workers are a specific factor for producing consumption, and they require managerial supervision. Through the lens of the model, the aftermath of the Great Recession of 2008 is unsurprising if the events of late 2008 and early 2009 are interpreted as a destruction of organization capital, or as a belief shock that made consumers want to reduce consumption and accumulate more wealth instead.

Keywords: Slow recoveries; Firm size distribution; Zipf’s law; Business cycles (search for similar items in EconPapers)
JEL-codes: E32 L11 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2019-06-26
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
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Related works:
Working Paper: Slow Convergence in Economies with Organization Capital (2018) Downloads
Working Paper: Slow Convergence in Economies with Organization Capital (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:585

DOI: 10.21034/sr.585

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