No abstract

This study measures the heterogeneity of establishment-level employment changes in the U.S. manufacturing sector over the 1972 to 1986 period. We measure this heterogeneity in terms of the gross creation and destruction of jobs and the rate at which jobs are reallocated across plants. Our measurement efforts enable us to quantify the connection between job reallocation and worker reallocation, to evaluate theories of heterogeneity in plant-level employment dynamics, and to establish new results related to the cyclical behavior of the labor market.

Abstract-The view that small businesses create the most jobs remains appealing to policymakers and small business advocates. Using data from the Census Bureau's Business Dynamics Statistics and Longitudinal Business Database, we explore the many issues at the core of this ongoing debate. We find that the relationship between firm size and employment growth is sensitive to these issues. However, our main finding is that once we control for firm age, there is no systematic relationship between firm size and growth. Our findings highlight the important role of business start-ups and young businesses in U.S. job creation.

There is considerable evidence that producer-level churning contributes substantially to aggregate (industry) productivity growth, as more productive businesses displace less productive ones. However, this research has been limited by the fact that producer-level prices are typically unobserved; thus within-industry price differences are embodied in productivity measures. If prices reflect idiosyncratic demand or market power shifts, high "productivity" businesses may not be particularly efficient, and the literature's findings might be better interpreted as evidence of entering businesses displacing less profitable, but not necessarily less productive, exiting businesses. In this paper, we investigate the nature of selection and productivity growth using data from industries where we observe producer-level quantities and prices separately. We show there are important differences between revenue and physical productivity. A key dissimilarity is that physical productivity is inversely correlated with plant-level prices while revenue productivity is positively correlated with prices. This implies that previous work linking (revenue-based) productivity to survival has confounded the separate and opposing effects of technical efficiency and demand on survival, understating the true impacts of both. We further show that young producers charge lower prices than incumbents, and as such the literature understates the productivity advantage of new producers and the contribution of entry to aggregate productivity growth.

This paper studies the nature of capital adjustment at the plant level. We use an indirect inference procedure to estimate the structural parameters of a rich specification of capital adjustment costs. In effect, the parameters are optimally chosen to reproduce a set of moments that capture the non-linear relationship between investment and profitability found in plant-level data. Our findings indicate that a model, which mixes both convex and non-convex adjustment costs, fits the data best.1. Holt et al. (1960) found a quadratic specification of adjustment costs to be a good approximation of hiring and lay-off costs, overtime costs, inventory costs, and machine set-up costs in selected manufacturing industries. These components of adjustment costs for changing the level of production are relevant here but are by no means the only relevant costs. In terms of changes in the level of capital services, Peck (1974) studies investment in turbo-generator sets for a panel of 15 electric utility firms and found that "The investments in turbogenerator sets undertaken by any firm took place at discrete and often widely dispersed points of time". In their study of investment in large scale computer systems, Ito et al. (1999) also find evidence of lumpy investment. Their analysis of the costs of adjusting the stock of computer 611 612 REVIEW OF ECONOMIC STUDIES Despite this perspective from the industry case studies, the workhorse model of the investment literature has been a standard neoclassical model with convex costs (often approximated to be quadratic) of adjustment. This model has not performed that well even at the aggregate level (see Caballero, 1999), but the recent development of longitudinal establishment databases has raised even more questions about the standard convex cost model.An alternative approach, highlighted in the work of Abel and Eberly (1994, 1996), Doms and Dunne (1994), Haltiwanger (1995), andPower (1999), argues that non-convexities and irreversibilities play a central role in the investment process. The primary basis for this view, reviewed in detail in the following, is plant-level evidence of a non-linear relationship between investment and measures of fundamentals, including investment bursts (spikes) as well as periods of inaction.One limitation of this recent empirical literature is that it has focused primarily on reducedform implications of non-convex vs. convex models. The results that emerge reject the reducedform implications of a pure convex model and are consistent with the presence of non-convexities. The reduced-form nature of the results have left us with several important, unresolved questions: what is the nature of the capital adjustment process at the micro-level? Does the micro-evidence support the presence of both convex and non-convex components of adjustment costs as might be expected based upon the limited number of industry case studies? More specifically, what are the structural estimates of the convex and non-convex components of adjustment costs that are consistent with ...

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E S ABSTRACT Cross-Country Differences in Productivity:The Role of Allocation and Selection * This paper combines different strands of the productivity literature to investigate the effect of idiosyncratic (firm-level) policy distortions on aggregate outcomes. On the one hand, a growing body of empirical research has been relating cross-country differences in key economic outcomes, such as productivity or output per capita, to differences in policies and institutions that shape the business environment. On the other hand, a branch of empirical research has attempted to shed light on the determinants of productivity at the firm-level and the evolution of the distribution of productivity across firms within each industry. In this paper, we exploit a rich source of data with harmonized statistics on firm level variation within industries for a number of countries. Our key empirical finding is that there is substantial variation in the within-industry covariance between size and productivity across countries, and this variation is affected by the presence of idiosyncratic distortions. We develop a model in which heterogeneous firms face adjustment frictions (overhead labor and quasi-fixed capital) and idiosyncratic distortions. We show that the model can be readily calibrated to match the observed cross-country patterns of the within-industry covariance between productivity and size and thus help to explain the observed differences in aggregate performance. NON-TECHNICAL SUMMARYThis paper sheds light on the role of policy-induced distortions in the allocation of resources for productivity growth. It exploits a rich source of data with harmonized statistics on firm level variation in productivity and size within each industry for a number of countries. It shows that the observed cross-country variation in the correlation between firms' size and their productivity, within-industry, can be explained by the presence of idiosyncratic distortions. The paper presents a theoretical model in which heterogeneous firms face adjustment frictions (overhead labor and quasi-fixed capital) and idiosyncratic distortions. The model can be readily calibrated to match the observed cross-country patterns of the within-industry covariance between productivity and size and thus help to explain the observed differences in aggregate performance.JEL Classification: E02, L11, L16, L2, L25, O4, O57

A pervasive finding in the burgeoning literature using business microdata is that firm turnover is high and that this churning process contributes substantially to aggregate (industry) productivity growth, as more productive entrants appear to displace less productive exiting businesses. A limitation of this research is that establishment-level prices are typically unobserved, resulting in within-industry price differences being embodied in productivity measures. If prices reflect idiosyncratic demand shifts or market power variation, high "productivity" businesses may not be particularly efficient. In this case, the literature's findings might be better interpreted as evidence of entering businesses displacing less profitable, but not necessarily less productive, exiting businesses. This distinction is important not only for the sake of understanding the positive features of selection, but the normative ones as well; whether selection is driven by efficiency or market power differences has important welfare implications. In this paper, we investigate the nature of selection using data from industries where we observe both establishment-level quantities and prices. We find that, as has been found in the preceding literature for revenue-based TFP measures, physical productivity and prices also exhibit considerable within-industry variation. We also show that while physical productivity shares common traits with revenue-based measures, there are important differences. These involve the productivity levels of entrants relative to incumbents and the size of the impact of net entry on productivity aggregates. Furthermore, we characterize the dimension(s) of selection and show that both idiosyncratic productivity and demand (price) conditions affect businesses' survival probabilities.

The United States has long been viewed as having among the world's most entrepreneurial, dynamic, and flexible economies. It is often argued that this dynamism and flexibility has enabled the US economy to adapt to changing economic circumstances and recover from recessions in a robust manner. While the evidence provides broad support for this view, the outcomes of entrepreneurship are more heterogeneous than commonly appreciated and appear to be evolving in ways that could raise concern. Evidence along a number of dimensions and a variety of sources points to a US economy that is becoming less dynamic. Of particular interest are declining business startup rates and the resulting diminished role for dynamic young businesses in the economy.We begin by describing how the concept of entrepreneurship is reflected in existing data on firm age and size. The recent addition of firm age to official statistics represents a dramatic improvement in the information available to entrepreneurship researchers. We then turn to a discussion of the role of startup firms in job creation. Business startups account for about 20 percent of US gross (total) job creation while high-growth businesses (which are disproportionately young)