Productivity slowdown and firm demographics: what link?

This study revisits the role of business demographics in the slowdown of productivity, focusing on the respective contributions of business renewal ("creative destruction") and reallocation mechanisms within firms. The study provides a detailed discussion of the methodological issues underlying the analysis of productivity gains decomposition using firm-level data and proposes a new method to distinguish the contributions of newly created and exiting firms, as well as the effects of learning and reallocation among surviving firms. This method is applied to firm-level data from 2003 to 2022. The results suggest that the share of creative destruction has declined over the period: while firms exiting the market remain among the least productive, new entrants have become increasingly less productive. Moreover, the productivity of surviving firms has tended to decline over time. Labor reallocations contribute negatively to productivity, though this inefficiency factor has somewhat diminished over the period. Finally, changes in productivity do not appear to be explained by sectoral shifts during the period under study.