Despite much heterogeneity in the decline in market entry and the pace of recovery, Chart 3 shows that sectors in countries that were more resilient in the first phase of lockdown also showed a more dynamic recovery over the summer. The correlation illustrated in this figure reflects the role of sectoral and country-specific factors. Looking at the average extent of the decline and recovery in the country, the least severely affected sectors have also benefited to some extent from a more dynamic recovery. At the same time, the control of sectoral dynamics shows that even countries experiencing a more moderate decline in market entry were able to restore or increase the level of enterprise creation compared to previous years (as also shown in Figure 1). This suggests that the recovery in business creation observed in some countries and sectors not only reflects a catch-up phenomenon, but could also indicate the emergence of new business opportunities. To understand why knowledge dissemination is important, consider a market where it is largely absent. In this case, market leaders are protected against counterfeiting, which helps them to strengthen their market power. When market leaders have a greater lead over their competitors, followers become discouraged; As a result, they slow down. The productivity gap between executives and followers is widening. The first consequence of this expansion is that the composition of the market is shifting towards more concentrated sectors.
Second, limiting prices allows stronger executives (more advanced executives) to charge higher premiums, which also increases the share of profits and reduces the share of labor in gross domestic product (GDP). As market participants look to the future, they observe the strengthening of incumbents and become discouraged. As a result, the entrance fee decreases. Discouraged followers and newcomers reduce the competitive pressure on the market leader: when less threatened, market leaders relax and experiment less. As a result, the overall dynamics and experimentation in the economy are declining. However, recent research shows that momentum is slowing. Brain drain and new business creation have steadily declined in recent decades, and the pace of net job creation has been moderate. This decline has been documented in various sectors of the U.S. economy, even high-tech.
Recent work by Guzman, Stern and their co-authors addresses this issue, i.e. the lack of a close relationship between measured firm creation and productivity growth. They examine the intriguing notion that the decline in start-up rates represents a decline in the creation of firms that are relatively unimportant to the economy as a whole – for value creation, productivity and job creation. It is still too early to judge the evolution of market entry during the lockdowns at the end of 2020, as the data collected so far will in most cases stop in September, just before the second wave of the pandemic hits most OECD countries.6 However, the overall decline in business registrations observed in several countries could exacerbate secular slowdown trends. observed in many OECD countries over the past two decades (Calvino, Criscuolo and Verlhac, 2020). For at least 30 years, the rate of business creation in the United States has been declining and the average age of existing businesses has increased. Since 2000, two other things have happened: productivity growth has slowed while many skilled jobs have disappeared. Start-ups are seen as an important source of innovation in the economy and for net job creation. At the same time, as Schumpeter`s notion of creative destruction suggests, the death of old companies is an essential part of the renewal process. The downward trend in inflows and outflows has worried people that the dynamics of the U.S.
economy are slowing (see our previous article). BY: Dustin Chambers, Patrick McLaughlin, Oliver Sherouse DATE: November 6, 2020 Abstract: Recent empirical studies estimating the impact of U.S. federal regulation on domestic operations have come to seemingly contradictory conclusions. When measuring firm activity using traditional measures of entrepreneurship (i.e., business start-ups and job creation), some researchers observe a negative association between regulatory accumulation and entrepreneurship. However, others find no significant link between regulatory accumulation and start-up activity when they measure business activity using measures common in the dynamics literature. After excluding differences in the unit of measure (i.e., enterprises versus establishments), industry aggregation (i.e., classification of three-digit NAICS codes relative to B), and regulatory measurement (i.e., RegData 2.0 versus 2.1), we show that methodological differences in the measurement of entrepreneurship are responsible for the conflicting results. However, if we allow the impact of regulation on birth rate to vary across industries and over time, we empirically show that the decline in momentum measured over the sampling period is associated with higher regulation. The loss of firm dynamism – the constant process of creating, growing, shrinking, and disappearing new firms, which is a fundamental source for the redistribution of factors into more productive units—in the U.S. economy since the 1980s and, more visibly, since the 2000s, manifests itself in a set of empirical laws. The entry rate of new firms (Figure 1a), the rate of job redistribution, and the share of the labour force have all declined (Decker et al., 2016; Karabarbounis and Neiman, 2013; Barkai, 2017, among others), but profit share, market concentration, and margins (Figure 1b) have all increased (Autor et al., 2017a,b; De Loecker and Eeckhout, 2017; Gutiérrez and Philippon, 2016, 2017; Eggertsson et al., 2018; Farhi and Gourio, 2018, among others).
These trends have attracted remarkable attention in academic and political circles. In fact, the Federal Trade Commission recently held “21st Century Competition and Consumer Protection Hearings” with a particular focus on competition and market concentration.