Older and Slower: The Startup Deficit's Lasting Effects on Aggregate Productivity Growth [report]

Titan Alon, David Berger, Robert Dent, Benjamin Pugsley
2017 unpublished
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)
more » ... 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.
doi:10.3386/w23875 fatcat:uxgxpfrdnreyjg5xy2e44u44ia