Working Paper

Declining Dynamism, Allocative Efficiency, and the Productivity Slowdown


Abstract: A large literature documents declining measures of business dynamism including high-growth young firm activity and job reallocation. A distinct literature describes a slowdown in the pace of aggregate labor productivity growth. We relate these patterns by studying changes in productivity growth from the late 1990s to the mid 2000s using firm-level data. We find that diminished allocative efficiency gains can account for the productivity slowdown in a manner that interacts with the within-firm productivity growth distribution. The evidence suggests that the decline in dynamism is reason for concern and sheds light on debates about the causes of slowing productivity growth.

Keywords: Labor supply and demand; Productivity; Job reallocation;

JEL Classification: E24; L11; J63; O47;

https://doi.org/10.17016/FEDS.2017.019

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Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2017-02-07

Number: 2017-019

Pages: 12 pages