Finance and Economics Discussion Series (FEDS)
Declining Dynamism, Allocative Efficiency, and the Productivity Slowdown
Ryan A. Decker, John Haltiwanger, Ron S. Jarmin, and Javier Miranda
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.
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Keywords: Job reallocation, Labor supply and demand, Productivity
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