Macro-JI Seminar - Fatih Guvenen

Abstract

Using firm-level panel data from the US Census Bureau and almost fifty other
countries, we show that the skewness of the growth rates of employment, sales,
and productivity is procyclical. In particular, these distributions display a large
left tail of negative growth rates during recessions and a large right tail of positive
growth rates during booms.

We find similar results at the industry level: industries with falling growth rates see
more left-skewed growth rates of firm sales, employment, and productivity. We then
build a heterogeneous-agents model in which entrepreneurs face shocks with time-varying
skewness that matches the firm-level distributions we document for the United States.

Our quantitative results show that a negative shock to the skewness of firms’ productivity growth
(keeping the mean and variance constant) generates a persistent drop in output, investment,
hiring, and consumption. This suggests the rising risk of large negative firm-level
shocks could be an important factor driving recessions.