A Theory of Falling Growth and Rising Rents

ECB
By September 16, 2019 09:43

A Theory of Falling Growth and Rising Rents

Growth has fallen in the U.S., while firm concentration and profits have risen. Meanwhile, labor’s share of national income is down, mostly due to the rising market share of low labor share firms. We propose a theory for these trends in which the driving force is falling firm-level costs of spanning multiple markets, perhaps due to accelerating IT advances. In response, the most efficient firms spread into new markets, thereby generating a temporary burst of growth. Because their efficiency is difficult to imitate, less efficient firms find their markets more difficult to enter profitably and innovate less. Even the most efficient firms do less innovation eventually because they are more likely to compete with each other if they try to expand further.

ECB
By September 16, 2019 09:43

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