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Title: Innovation, Demand for Skills, and Productivity Growth

Citation Type: Miscellaneous

Publication Year: 2019

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Abstract: Young firm employment shares have been declining in the U.S. and the decline has been particularly pronounced in the high-tech sector post-2000. Do labor market frictions play a role in declining young firm activities and the associated slower productivity growth? Using a longitudinal worker-firm matched dataset from the U.S. Census Bureau, I document that declining young firm activities are accompanied by: 1) a decline in the growth rate of the demand for skills in the high-tech sector, and 2) a flattening of the life cycle of skilled labor accumulation of high-tech firms. By developing an endogenous growth firm dynamics model that is consistent with the micro-level skilled labor accumulation over the firm life cycle, I show that rising frictions in skilled labor adjustment can explain the joint evolution of young firm employment shares and demand for skills. These frictions influence productivity growth through affecting the stock of human capital firms possess. A calibrated model shows that a rise in skilled labor adjustment costs lowers productivity growth by 75 basis points in the high-tech sector. A rise in entry costs, on the other hand, is not likely the main driver for declining young firm activities, as it implies an increase in demand for skills.

Url: http://econweb.umd.edu/~zhao/files/JMP_zhao.pdf

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Authors: Zhao, Yi Laura

Publisher: University of Maryland

Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure, Other

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