The Role of Nonemployers in Business Dynamism and Aggregate Productivity

The well-documented decline in business dynamism, measured in the literature by the net entry rate of employer firms, has been proposed as an explanation for the productivity growth slow-down in the United States. We assess the role of nonemployers, firms without paid employees, in business dynamism and aggregate productivity. Including nonemployers, the total number of firms has instead increased since the early 1980s, which in the context of a standard model of firm dynamics implies an average annual growth of aggregate productivity of 0.26%, one-quarter of the productivity growth in the data. Accounting for changes in the share of nonemployers and the firm size distribution over time, the increase in the total number of businesses implies an even higher productivity growth of 0.52% annually. The productivity growth slowdown is not due to changes in business dynamism.