Job Creation in Colombia vs the U.S.: 'Up or out Dynamics' Meets 'The Life Cycle of Plants'

Abstract

Following the seminal work of Hsieh and Klenow (2014), there is growing consensus that a key difference between the U.S. and developing economies is that the latter exhibit slower employment growth over the life cycle of the average productive establishment. At the same time, the distribution of startup employment growth in the U.S. is highly skewed, with extraordinary growth establishments driving average employment growth, giving rise to the up or out dynamics label (Haltiwanger, Jarmin and Miranda, 2013). We look at the entire population of non-micro manufacturing establishments in Colombia vs. the US and find that slower average life cycle growth in Colombia is driven by a less enthusiastic contribution of extraordinary growth plants and less dynamic selection of young underperforming plants. As a consequence, the size distribution of non-micro plants exhibits more concentration in small-old plants in Colombia, both in unweighted and employment-weighted bases. These findings point to a shortage of high-growth entrepreneurship and a relatively high likelihood of long-run survival for small, likely unproductive plants, as two key elements at the heart of the development problem. An extreme concentration of resources in micro plants is the other distinguishing feature of the Colombian manufacturing sector vis a vis the US'.