Declining Dynamism, Allocative Efficiency, and the Productivity Slowdown

Decker, Ryan A.; Haltiwanger, John; Jarmin, Ron S.; Miranda, Javier

doi:10.17016/FEDS.2017.019

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: Job reallocation; Labor supply and demand; Productivity;

JEL Classification: O47; L11; E24; J63;

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