Peer-Reviewed Publications
Other Publications
Working Papers


Peer-Reviewed Publications


Where Has All the Skewness Gone? The Decline in High-Growth (Young) Firms in the U.S., with John Haltiwanger, Ron S. Jarmin, and Javier Miranda. 2016. European Economic Review 86 (July): 4-23. [pdf] (CES working paper #15-43; NBER working paper #21776)

Abstract:


The pace of business dynamism and entrepreneurship in the U.S. has declined over recent decades. We show that the character of that decline changed around 2000. Since 2000 the decline in dynamism and entrepreneurship has been accompanied by a decline in high-growth young firms. Prior research has shown that the sustained contribution of business startups to job creation stems from a relatively small fraction of high-growth young firms. The presence of these high-growth young firms contributes to a highly (positively) skewed firm growth rate distribution. In 1999, a firm at the 90th percentile of the employment growth rate distribution grew about 31 percent faster than the median firm. Moreover, the 90-50 differential was 16 percent larger than the 50-10 differential reflecting the positive skewness of the employment growth rate distribution. We show that the shape of the firm employment growth distribution changes substantially in the post-2000 period. By 2007, the 90-50 differential was only 4 percent larger than the 50-10, and it continued to exhibit a trend decline through 2011. The overall decline reflects a sharp drop in the 90th percentile of the growth rate distribution accounted for by the declining share of young firms and the declining propensity for young firms to be high-growth firms.

Selected Coverage:


Market exposure and endogenous firm volatility over the business cycle, with Pablo N. D'Erasmo and Hernan Moscoso Boedo. 2016. American Economic Journal: Macroeconomics 8(1): 148-98. [pdf]

This paper was originally circulated as "Intangibles and endogenous firm volatility over the business cycle".

Abstract:

We propose a theory of endogenous firm-level volatility over the business cycle based on endogenous market exposure. Firms that reach a larger number of markets diversify market-specific demand risk at a cost. The model is driven only by total factor productivity shocks and captures the business cycle properties of firm-level volatility. Using a panel of U.S. firms (Compustat), we empirically document the countercyclical nature of firm-level volatility. We then match this panel to Compustat's Segment Data and the U.S. Census Bureau's Longitudinal Business Database (LBD) to show that, consistent with our model, measures of market reach are procyclical and the countercyclicatility of firm-level volatility is driven mostly by those firms that adjust the number of markets to which they are exposed. This finding is explained by the negative elasticity between various measures of market exposure and firm-level idiosyncratic volatility we uncover using Compustat, the LBD, and the Kauffman Firm Survey.

Presentations:
  • November 2013 Midwest Macro meetings


The role of entrepreneurship in U.S. job creation and economic dynamism, with John Haltiwanger, Ron S. Jarmin, and Javier Miranda. 2014. Journal of Economic Perspectives 28:3-24. [pdf]

Abstract:

An optimal pace of business dynamics—encompassing the processes of entry, exit, expansion, and contraction—would balance the benefits of productivity and economic growth against the costs to firms and workers associated with reallocation of productive resources. It is difficult to prescribe what the optimal pace should be, but evidence accumulating from multiple datasets and methodologies suggests that the rate of business startups and the pace of employment dynamism in the US economy has fallen over recent decades and that this downward trend accelerated after 2000. A critical factor in accounting for the decline in business dynamics is a lower rate of business startups and the related decreasing role of dynamic young businesses in the economy. For example, the share of US employment accounted for by young firms has declined by almost 30 percent over the last 30 years. These trends suggest that incentives for entrepreneurs to start new firms in the United States have diminished over time. We do not identify all the factors underlying these trends in this paper but offer some clues based on the empirical patterns for specific sectors and geographic regions.

Presentations:
  • 2012 APPAM Fall Research Conference

Selected coverage:

Other Publications



Declining business dynamism: What we know and the way forward,
with John Haltiwanger, Ron S. Jarmin, and Javier Miranda. American Economic Review: Papers & Proceedings 106(5): 203-207. [pdf]

Abstract:

A growing body of evidence indicates that the U.S. economy has become less dynamic in recent years. This trend is evident in declining rates of gross job and worker flows as well as declining rates of entrepreneurship and young firm activity, and the trend is pervasive across industries, regions, and firm size classes. We describe the evidence on these changes in the U.S. economy by reviewing existing research. We then describe new empirical facts about the relationship between establishment-level productivity and employment growth, framing our results in terms of canonical models of firm dynamics and suggesting empirically testable potential explanations.

Coverage:



Unraveling the oil conundrum: Productivity improvements and cost declines in the U.S. shale oil industry, with Aaron Flaaen and Maria D. Tito. FEDS Note, 22 March 2016.

Abstract:

Why have large declines in oil prices and in the rig count not triggered a more dramatic decline in shale oil production? At what price level would a large share of U.S. shale oil production lose economic viability? In this note, we explore these questions with a focus on the U.S. shale oil industry in the Bakken, Eagle Ford, and Permian Basin regions. We describe large productivity improvements in drilling and fracking methods that have allowed production to remain strong despite falling rig usage. We then document cost declines that have preserved profitability for many firms even in the midst of historically low prices.

Coverage:


The decline of high-growth entrepreneurship, with John Haltiwanger, Ron Jarmin, and Javier Miranda. VOX column, 19 March 2016.

Abstract:

Recent evidence suggests that transformational entrepreneurial firms -- those that introduce major innovations and make substantial contributions to growth -- have been in decline. This column uses US micro data to explore the behavior of high-growth young firms between 1980 and 2010. A decline in young firm activity in the 1980s and 1990s was dominated by young firms in the retail trade sector. In the post-2000 period, in contrast, a sharp decline in high-growth young businesses in key innovative sectors like high tech suggests there has been a decline in transformational entrepreneurs in this sector.

Coverage:


Working Papers



Declining dynamism, allocative efficiency, and the productivity slowdown, with John Haltiwanger, Ron S. Jarmin, and Javier Miranda. [pdf including online appendix] (FEDS Working Paper #2017-019)

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.

Coverage:


Changing business dynamism and productivity: Shocks vs. responsiveness with John Haltiwanger, Ron S. Jarmin, and Javier Miranda. [pdf]

This paper combines research from two previously circulating working papers: (1) "Changing business dynamism: Volatility of shocks vs. responsiveness to shocks?", and (2) "Declining business dynamism: Implications for productivity?". The latter paper was prepared for a Brookings Hutchins Center conference and is described here.

Abstract:

The pace of business dynamism as measured by indicators such as job reallocation has declined in recent decades in the U.S., and theory suggests that this may have implications for productivity. The declining dynamism in sectors like Retail Trade disproportionately accounted for these trends in the 1980s and 1990s, and was productivity enhancing. In contrast, the pace of reallocation in High Tech industries has a rising then falling pattern during the 1990s and 2000s that mimics the pattern of U.S. productivity growth. We investigate whether these trends in dynamism and productivity are related by drawing insights from canonical models of firm dynamics. Focusing on the High Tech sector, we ask whether observed patterns of reallocation reflect changes in the volatility of idiosyncratic productivity shocks or changes in the marginal responsiveness of businesses to those shocks. Using Manufacturing TFP data we show that shock volatility has not declined but that the plant-level marginal responsiveness of business growth to productivity rises then falls in tandem with the hump-shaped behavior of both job reallocation and productivity growth in the High Tech sector. The results are particularly notable for young businesses. During the 1990s, rising responsiveness yields an increase in the contribution of reallocation to productivity growth of as much as half a log point per year; during the post-2000 period, responsiveness declines precipitously implying as much as a two log point per year reduction in the annual contribution of reallocation to industry-level productivity growth. Using new economywide data on firm-level labor productivity, we further show that the post-2000 Manufacturing results generalize to the entire U.S. economy and the broad High Tech sector specifically. Rising within-industry dispersion in firm-level labor productivity in the post-2000 period is consistent with an increase in frictions or distortions in the U.S. economy.

Presentations:
  • George Mason University, Drexel University

Selected Coverage:


Entrepreneurship and state policy, with E. Mark Curtis [pdf]

Abstract:

Entrepreneurship plays an important role in labor markets, productivity growth, and occupational choices. While a large and growing literature studies patterns in entrepreneurial activity in the U.S., there exists little well-identified research into the policy determinants of entrepreneurial outcomes and the differing effects of policies on firms of different ages. Using the recently developed Quarterly Workforce Indicators dataset, we consider three state-level policies--corporate income taxes, minimum wages, and personal income taxes--and study their effects on new firm activity by comparing contiguous counties that lie across state borders. We estimate the effect of changes in these policies on employment and job flows at new firms. We find significant negative effects of corporate tax increases on the level of entrepreneurial activity, and we find that new firms account for a disproportionate share of the response of aggregate employment growth to such tax changes. The effects of minimum wages are of moderate size but largely dissipate after accounting for cross-border spillovers. Finally, we find no statistically significant impact of personal tax rates.

Presentations:
  • NBER Entrepreneurship and Economic Growth pre-conference and conference
  • Southern Economic Association 2016 meeting


Collateral damage: Housing, entrepreneurship, and job creation (job market paper) [pdf].

Abstract:

Entrepreneurial activity in the U.S. collapsed prior to and during the Great Recession. This collapse was significant in terms of both new firm formation and entrepreneurial employment, and it coincided with a historic decline in home values that preceded the onset of the broad recession by at least nine months. I construct a heterogeneous agent DSGE model with both housing and entrepreneurship. The model is characterized by financial frictions that affect both credit supply and credit demand. I consider the consequences of a "housing crisis" as opposed to a "financial crisis." The model produces a quantitatively meaningful, negative response of entrepreneurship to a housing crisis via a housing collateral channel; a financial crisis (which works through credit supply) has more nuanced effects, causing economic disruption that entices new low-productivity entrepreneurs into production. The broad financial crisis cannot account for the collapse in entrepreneurship, but recessions accompanied by a housing market  collapse may be associated with significant reductions in entrepreneurial activity.

Presentations:
  • University of Mississippi, University of Georgia, Brigham Young University, University of Oregon, Bureau of Labor Statistics, Federal Reserve Board, Federal Reserve Bank of Minneapolis


Permanent Unpublished Manuscripts


Declining  business dynamism: Implications for productivity? with John Haltiwanger, Ron S. Jarmin, and Javier Miranda. [pdf]. (Hutchins Center Working Paper #23)

This manuscript was prepared for a Brookings Hutchins Center event on productivity growth. We do not intend to publish this specific manuscript. Much of the material included in this paper is present in other papers, some published and some still in progress.

Abstract:

We summarize the accumulating evidence on declining business dynamism in the U.S. and describe new findings on its implications for aggregate productivity. A growing literature demonstrates secular declines in a variety of measures of business dynamism in the U.S. over the last few decades and particularly since 2000. This trend is evident in data on new firm formations, gross job creation and destruction, and worker flows. A large fraction of aggregate (industry-level) productivity growth is accounted for by the movement of resources from less-productive to more-productive businesses within industries, so a reduction in dynamism may imply that there has been a slowdown in productivity-enhancing reallocation. Of particular interest is that there has been a reduction in high-growth entrepreneurship in the U.S. in the post-2000 period especially in innovative sectors like High Tech (which has historically been an important source of productivity growth). Since this is a period in which the aggregate data show an overall productivity slowdown in information technology producing and using industries, we investigate how the micro and macro patterns are related. We exploit new longitudinal firm microdata that enable tracking the connection between productivity and reallocation dynamics for the entire U.S. economy. We find the distribution of firm-level real revenue growth dynamics exhibits similar patterns to employment growth with declining dispersion and skewness in key sectors like High Tech in the post-2000 period. In addition, we find that high-productivity firms in the High Tech sector and elsewhere are less likely to grow in the post-2000 period, and we describe an exercise showing a declining contribution of reallocation to productivity growth since 2000--particularly in the High Tech sector.



The Secular Decline in Business Dynamism in the U.S., with John Haltiwanger, Ron S. Jarmin, and Javier Miranda. [pdf].

We do not intend to publish this manuscript. Much of the material included in this paper is present in other papers, some published and some still in progress.

Abstract:

The pace of business dynamism in the U.S. has declined over recent decades. The decline is evident in a pronounced declining trend in the pace of both gross job creation and gross job destruction and in declining trends in alternative measures of establishment and firm level volatility. An important component of these declining trends is a marked decline in the firm startup rate. A recent finding in the literature is that the changing composition of U.S. businesses cannot account for the decline in dynamism. This is partly because the changing industrial composition of the U.S. economy actually works in the opposite direction. The implication is that much of the decline in dynamism should be viewed as occurring within detailed industry, firm size and firm age categories. To explore the factors underlying this within-cell decline in dynamism, we address two sets of closely related questions in this paper: First, what types of startups have exhibited the largest decline and, relatedly, what types of businesses have exhibited the largest decline in dynamism? Second, is the decline in dynamism accounted for by a decline in the variance of idiosyncratic shocks impacting firms or by a decline in the responsiveness of firms to the shocks?

Presentations:
  • Heritage Foundation Center for Data Analysis, George Mason University


Selected Coverage: