Declining Dynamism, Increasing Markups and Missing Growth: The Role of the Labor Force

Abstract

A growing body of empirical research highlights substantial changes in the US economy during the last three decades. Business dynamism -namely job reallocation, firm entry and creative destruction -is declining. Market power, as measured by markups and industry concentration, seems to be on the rise. Aggregate productivity growth is sluggish. We show that declines in the rate of growth of the labor force can qualitatively account for all of these features in a standard model of firm-dynamics. Despite its richness we can characterize the link between population growth and dynamism, markups and growth analytically. When we calibrate the model to the universe of U.S. Census data, the labor force channel can explain a large fraction of the aggregate trends.

Demographic Origins of the Startup Deficit

“…An emerging literature has already started to explore these consequences. Glover and Short (2018) and Hopenhayn, Neira, and Singhania (2018) link the demographic channel to the decline in the labor share; Pugsley and Şahin (2019) show that the emergence of jobless recoveries can be traced back to the decline in firm entry and subsequent aging of firms; Alon, Berger, Dent, and Pugsley (2018), Atkeson, Burstein, and Chatzikonstantinou (2018) and Peters and Walsh (2019) link the de-mographic driven declines in entry to the slowdown of aggregate productivity growth; and Crump, Eusepi, Giannoni, and Şahin (2019) argue that the demographic channel is an important driver of the secular downward trend in unemployment. If present trends in fertility and immigration continue, the startup rate will remain near its current levels, and understanding the equilibrium implications of slowing labor force growth will be especially relevant.…”

Business Dynamism and City Size

“…An emerging literature has already started to explore these consequences. Glover and Short (2018) and Hopenhayn, Neira, and Singhania (2018) link the demographic channel to the decline in the labor share; Pugsley and Şahin (2019) show that the emergence of jobless recoveries can be traced back to the decline in firm entry and subsequent aging of firms; Alon, Berger, Dent, and Pugsley (2018), Atkeson, Burstein, and Chatzikonstantinou (2018) and Peters and Walsh (2019) link the de-mographic driven declines in entry to the slowdown of aggregate productivity growth; and Crump, Eusepi, Giannoni, and Şahin (2019) argue that the demographic channel is an important driver of the secular downward trend in unemployment. If present trends in fertility and immigration continue, the startup rate will remain near its current levels, and understanding the equilibrium implications of slowing labor force growth will be especially relevant.…”

Demographic Origins of the Startup Deficit

“…An emerging literature has already started to explore these consequences. Glover and Short (2018) and Hopenhayn, Neira, and Singhania (2018) link the demographic channel to the decline in the labor share; Pugsley and Şahin (2019) show that the emergence of jobless recoveries can be traced back to the decline in firm entry and subsequent aging of firms; Alon, Berger, Dent, and Pugsley (2018), Atkeson, Burstein, and Chatzikonstantinou (2018) and Peters and Walsh (2019) link the de-mographic driven declines in entry to the slowdown of aggregate productivity growth; and Crump, Eusepi, Giannoni, and Şahin (2019) argue that the demographic channel is an important driver of the secular downward trend in unemployment. If present trends in fertility and immigration continue, the startup rate will remain near its current levels, and understanding the equilibrium implications of slowing labor force growth will be especially relevant.…”