Analysis reveals young firms contribute less to employment, suggesting implications for dynamism and aggregate output.
Young firms' contribution to aggregate employment has been underwhelming. We show that a similar trend is not apparent, however, in their contribution to aggregate sales or stock market capitalization, implying that these firms have exhibited a high average‐to‐marginal revenue product of labor. We study the implications of a gradual shift in the average‐to‐marginal revenue product of labor within a model of dynamic firm heterogeneity. We show that this shift provides (i) a unified explanation for several aspects of the decline in dynamism and (ii) a possible explanation for why large declines in young‐firm employment may have only a moderate effect on aggregate output and consumption.
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Barkai et al. (2025) studied this question.
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