Monday, June 15th: Simcha Barkai
Value without Employment by Simcha Barkai (London Business School) and Stavros Panageas (UCLA, Anderson and NBER) [pdf]
While young firms’ contribution to aggregate employment has been underwhelming over the past decades, a similar trend is not apparent in their contribution to aggregate sales and aggregate stock market capitalization. We provide evidence that the weak job creation by young firms coincided with an increase in the ratio of firm-value-to- employment and sales-to-employment for these firms. The weak job creation suggests that recent firm cohorts have faced a comparatively lower marginal product of labor (for a fixed unit of labor) compared to their predecessors, while the higher firm value-to- employment ratios suggest a higher average product of labor. Motivated by these facts, we study the implications of the arrival of “high average / low marginal” product-of- labor firms in a stylized model of dynamic firm heterogeneity, and show that the model can account for a large number of facts related to the decline in “business dynamism”. While accounting for the decline in business dynamism, the model also shows that aggregate output and productivity may remain unaffected by the decline in dynamism.