Article(electronic)#1September 4, 2022
Firm Ex Ante Heterogeneity, Entry and the Labour Share
In: The economic journal: the journal of the Royal Economic Society, Volume 133, Issue 649, p. 235-257
ISSN: 1468-0297
Abstract
This paper considers a two-sector real business cycle model augmented with firm heterogeneity and firm dynamics, and studies the steady state and dynamic properties of the model in response to a decline in the relative price of investment. It shows that both firm heterogeneity and entry play a crucial role in the decline in the labour share and the increase in capital intensity observed in the US economy. Using ORBIS firm-level data of the US economy, the paper finds robust evidence consistent with the mechanisms described in the model.