This paper considers a two-sector RBC 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.
This is a pre-copy-editing, author-produced PDF of an article accepted for publication in BritishThe Economic Journal following peer review. The definitive publisher-authenticated version Jakob Grazzini, Lorenza Rossi, Firm Ex Ante Heterogeneity, Entry and the Labour Share, The Economic Journal, Volume 133, Issue 649, January 2023, Pages 235–257, https://doi.org/10.1093/ej/ueac054 is available online at: https://academic.oup.com/ej/article-abstract/133/649/235/6691719
