The Role of Nonemployers in Business Dynamism and Aggregate Productivity

We examine the role of nonemployers in business dynamism and aggregate productivity. Between 1982 and 2014, the number of firms per worker including nonemployers increased by 41%. Using a model of firm dynamics, we derive implications for total factor productivity from changes in firms per worker and relative size distributions. Firm dynamics imply a 15.6% increase in aggregate productivity, compared with 2.1% growth when abstracting from nonemployers. Our results suggest that the productivity growth slowdown is not due to changes in net firm entry and highlight the quantitative importance of comprehensive measures of business dynamism in the US data.