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A Theory of Falling Growth and Rising Rents
Growth has fallen in the U.S., while firm concentration and profits have risen. Meanwhile, labor?s share of national income is down, mostly due to the rising market share of low labor share firms. We propose a theory for these trends in which the driving force is falling firm-level costs of spanning multiple markets, perhaps due to accelerating ICT advances. In response, the most efficient firms spread into new markets, thereby generating a temporary burst of growth. Because their efficiency is difficult to imitate, less efficient firms find their markets more difficult to enter profitably ...
Missing Growth from Creative Destruction
Statistical agencies typically impute inflation for disappearing products from the inflation rate for surviving products. As some products disappear precisely because they are displaced by better products, inflation may be lower at these points than for surviving products. As a result, creative destruction may result in overstated inflation and understated growth. We use a simple model to relate this ?missing growth? to the frequency and size of various kinds of innovations. Using U.S. Census data, we then apply two ways of assessing the magnitude of missing growth for all private nonfarm ...