Grown-up Business Cycles
Aysegul Sahin () and
Benjamin Pugsley ()
No 655, 2015 Meeting Papers from Society for Economic Dynamics
Abstract We document two striking facts about U.S. firm dynamics and interpret their significance for aggregate employment dynamics. The first observation is the steady decline in the firm entry rate over the last thirty years, and the second is the gradual shift of employment from younger to older firms over the same period. Both hold across industries and geography. We show that despite these trends, firms' lifecycle dynamics and their business cycle properties have remained virtually unchanged. Consequently, the reallocation of employment towards older firms results entirely from the cumulative effect of the 30-year decline in firm entry. This 'startup deficit' has both an immediate and a delayed (by shifting the age distribution) effect on aggregate employment dynamics. Recognizing this evolving heterogeneity is crucial for understanding shifts in aggregate behavior of employment over the business cycle. With mature firms less responsive to business cycle shocks, the cyclical component of aggregate employment growth diminishes with the increasing share of mature firms. At the same time, the trend decline in firm entry masks the diminishing cyclicality in contractions and reinforces it during expansions, which generates the appearance of jobless recoveries where aggregate employment recovers slowly relative to output.
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Working Paper: Grown-Up Business Cycles (2015)
Working Paper: Grown-up business cycles (2015)
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