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Declining business dynamism in Europe: The role of shocks, market power, and technology

Filippo Biondi, Sergio Inferrera, Matthias Mertens and Javier Miranda

No 19/2023, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: We study changes in business dynamism in Europe after 2000 using novel microaggregated data that we collected for 19 European countries. In all countries, we document a broad-based decline in job reallocation rates that concerns most economic sectors and size classes. This decline is mainly driven by dynamics within sectors, size, and age classes rather than by compositional changes. Large and mature firms experience the strongest decline in job reallocation rates. Simultaneously, the employment shares of young firms decline. Consistent with US evidence, firms' employment has become less responsive to productivity shocks. However, the dispersion of firms' productivity shocks has decreased too. To enhance our understanding of these patterns, we derive and apply a novel firmlevel framework that relates changes in firms' sales, market power, wages, and production technology to firms' responsiveness and job reallocation.

Keywords: business dynamism; European cross-country data; job reallocation; market power; productivity; responsiveness of labor demand; technology (search for similar items in EconPapers)
JEL-codes: D24 D43 J21 J23 J42 L11 L25 (search for similar items in EconPapers)
Date: 2024, Revised 2024
New Economics Papers: this item is included in nep-bec, nep-com, nep-eff, nep-ent, nep-lma and nep-tid
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Related works:
Working Paper: Declining business dynamism in Europe: The role of shocks, market power, and technology (2024) Downloads
Working Paper: Declining Business Dynamism in Europe: The Role of Shocks, Market Power, and Technology (2023) Downloads
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