Working Paper
A Theory of Falling Growth and Rising Rents
Abstract: Growth has fallen in the U.S. amid a rise in firm concentration. Market share has shifted to low labor share firms, while within-firm labor shares have actually risen. We propose a theory linking these trends in which the driving force is falling overhead costs of spanning multiple products or a rising efficiency advantage of large firms. In response, the most efficient firms (with higher markups) spread into new product lines, thereby increasing concentration and generating a temporary burst of growth. Eventually, due to greater competition from efficient firms, within-firm markups and incentives to innovate fall. Thus our simple model can generate qualitative patterns in line with the observed trends.
JEL Classification: O31; O47; O51;
https://doi.org/10.24148/wp2019-11
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Bibliographic Information
Provider: Federal Reserve Bank of San Francisco
Part of Series: Working Paper Series
Publication Date: 2022-01-21
Number: 2019-11
Note: The first version of this Working Paper was published March 27, 2019