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Older and Slower: The Startup Deficit’s Lasting Effects on Aggregate Productivity Growth

Titan Alon, David Berger (), Robert Dent and Benjamin Pugsley ()

No 23875, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E01 E24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-mac and nep-sbm
Date: 2017-09
Note: EFG
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