From Population Growth to Firm Demographics: Implications for Concentration, Entrepreneurship and the Labor Share

Hugo Hopenhayn, Julian Neira and Rish Singhania
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Hugo Hopenhayn: University of California Los Angeles

No 629, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: The US economy has undergone a number of puzzling changes in recent decades. Large firms now account for a greater share of economic activity, new firms are being created at a slower rate, and workers are getting paid a smaller share of GDP. This paper shows that changes in population growth provide a unified quantitative explanation for these long-term changes. The mechanism goes through firm entry rates. A decrease in population growth lowers firm entry rates, shifting the firm-age distribution towards older firms. Heterogeneity across firm age groups combined with an aging firm distribution replicates the observed trends. Micro data show that an aging firm distribution fully explains i) the concentration of employment in large firms, ii) and trends in average firm size and exit rates, key determinants of the firm entry rate. Building on empirical work that documents a negative relationship between firm size and labor share, we show that firm aging increases the market share of larger firms, leading to a decline in the aggregate labor share.

Date: 2019
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Related works:
Journal Article: From Population Growth to Firm Demographics: Implications for Concentration, Entrepreneurship and the Labor Share (2022)
Working Paper: From Population Growth to Firm Demographics: Implications for Concentration, Entrepreneurship and the Labor Share (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:629

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