Schumpeterian Churn Dynamics And Re-gional Productivity Performance

Abstract

This study tests empirically the Schumpeterian premise that the incessantturbulence of an economy in motion, apart from a production function comprised of static inputs, is capable of explaining patterns of economic growth and change. Localized employment churn"registered as job creation/destruction dynamics isused to account forvariations in U.S. metro-regional economic productivity performancesduring the 1986-99 period. The empirical results suggest that employment turnover and replacementdynamics have large and significant positive effects on localized productivity growth independent of a variety of industrial restructuring processes occurring simultaneously. While employment churn effectsare robust across U.S. Census regions, they do not exert a uniform influence on metro-regional productivity performances across time. Until 1996, job creation and destruction dynamics often canceled each other out as metro-regions underwent continued industrial restructuring. Since 1996, however, the positive effects on metro-region productivity growth have been consistently strong. In addition toa strong positiveeffect on productivity of the emergence of a localized IT sector, both an expanding service sector share of regional employment and a rising public spending share of regional outputexert powerful downward pressure on productivity growth rates.