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The Role of Nonemployers in Business Dynamism and Aggregate Productivity

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  • Pedro Bento
  • Diego Restuccia
Abstract
The well-documented decline in business dynamism, measured by the net entry rate of employer firms, has been proposed as an explanation for the productivity growth slowdown in the United States. We examine the role of nonemployers, firms without paid employees, in business dynamism and aggregate productivity. Between 1982 and 2014, the total number of firms per worker including nonemployers increased by 41\%, whereas employer firms per worker declined by -8.7%. Using a standard model of firm dynamics, we derive the implications for aggregate productivity associated with changes in firms per worker and relative size distributions. We find that firm dynamics imply an increase in aggregate productivity of 15.6%, about half the growth observed in the data, that is equally shared by the changes in firms per worker and relative sizes. These results contrast markedly with the much weaker 2.1% growth in aggregate productivity from firm dynamics when abstracting from nonemployer firms. Our results suggest the productivity growth slowdown is not due to changes in net firm entry, and highlight the quantitative importance of comprehensive measures of business dynamism in the U.S. data.

Suggested Citation

  • Pedro Bento & Diego Restuccia, 2024. "The Role of Nonemployers in Business Dynamism and Aggregate Productivity," Working Papers tecipa-780, University of Toronto, Department of Economics.
    • Handle: RePEc:tor:tecipa:tecipa-780
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    References listed on IDEAS

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    Cited by:

    1. Adela Luque & Vitaliy Novik, 2024. "Garage Entrepreneurs or just Self-Employed? An Investigation into Nonemployer Entrepreneurship," Working Papers 24-61, Center for Economic Studies, U.S. Census Bureau.
    2. Cockx, Bart & Desiere, Sam, 2024. "Labour costs and the decision to hire the first employee," European Economic Review, Elsevier, vol. 170(C).
    3. Bento, Pedro & Hwang, Sunju, 2023. "Barriers to black entrepreneurship: Implications for welfare and aggregate output over time," Journal of Monetary Economics, Elsevier, vol. 134(C), pages 16-34.
    4. Pedro Bento, 2020. "Female Entrepreneurship in the U.S. 1982 - 2012: Implications for Welfare and Aggregate Output," Working Papers 20201201-001, Texas A&M University, Department of Economics.
    5. Akcigit, Ufuk & Dinlersoz, Emin & Greenwood, Jeremy & Penciakova, Veronika, 2022. "Synergizing ventures," Journal of Economic Dynamics and Control, Elsevier, vol. 143(C).
    6. Pedro Bento, 2021. "Trade without “scale effects”," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(3), pages 1252-1274, November.
    7. Innessa Colaiacovo & Margaret Dalton & Sari Pekkala Kerr & William R. Kerr, 2022. "The Transformation of Self Employment," Working Papers 22-03, Center for Economic Studies, U.S. Census Bureau.

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    More about this item

    Keywords

    nonemployers; employer firms; business dynamism; productivity; TFP.;
    All these keywords.

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models

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