Economics Department Working Paper Series

Working Paper Number

2021-06

Publication Date

2021

Abstract

This paper establishes that entry and exit regulate the top half of the profitability distribution in the post-1970 U.S. economy. We, first, document stability in the distribution of total profits earned on tangible, intangible, and financial capital. Whereas a narrower measure of returns on tangible capital, instead, suggests rising dispersion, it fails to capture post-1970 growth in intangible and financial assets. Second, we use quantile decompositions to show that churning – specifically, exit for cause – regulates median and top-end profitability. Thus, the process by which competition drives out unprofitable firms acts to stabilize profit rates in the U.S. economy.

License

UMass Amherst Open Access Policy

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