No abstract

The U.S. retail trade sector underwent a massive restructuring and reallocation of activity in the 1990s with accompanying technological advances. Using a data set of establishments in that sector, we quantify and explore the relationship between this restructuring and reallocation and labor productivity dynamics. We find that virtually all of the labor productivity growth in the retail trade sector is accounted for by more productive entering establishments displacing much less productive exiting establishments. The productivity gap between low-productivity exiting single-unit establishments and entering high-productivity establishments from large, national chains plays a disproportionate role in these dynamics. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Understanding the nature and magnitude of resource reallocation, particularly as it relates to productivity growth, is important both because it affects how we model and interpret aggregate productivity dynamics, and also because market structure and institutions may affect the reallocation's magnitude and efficiency. Most evidence to date on the connection between reallocation and productivity dynamics for the U.S. and other countries comes from a single industry: manufacturing. Building upon a unique establishment-level data set of U.S. retail trade businesses, we provide some of the first evidence on the connection between reallocation and productivity dynamics in a non-manufacturing sector. Retail trade is a particularly appropriate subject for such a study since this large industry lies at the heart of many recent technological advances, such as E-commerce and advanced inventory controls. Our results show that virtually all of the productivity growth in the U.S. retail trade sector over the 1990s is accounted for by more productive entering establishments displacing much less productive exiting establishments.Interestingly, much of the between-establishment reallocation is a within, rather than between-firm phenomenon.

Foster, and participants at the NBER/CRIW conference on Producer Dynamics in April 2005 and at an AEA/SBA session in January 2005. We also would like to thank Paul Hanczaryk for helping us understand the Census Bureau's nonemployer data. This work has undergone a more limited review than official Census Bureau publications. The views, findings, and opinions expressed in this work are those of the authors and not the U.S. Census Bureau. All results have been reviewed to ensure confidentiality.

and participants at the NBER Conference on Entrepreneurship and Cities for helpful comments. We thank the Kauffman Foundation for financial support. Any opinions and conclusions expressed herein are those of the author(s) and do not necessarily represent the views of the U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.