Frontier Firms

“Frontier firms” are the core analytical unit of Rekindling US Productivity for a New Era — the companies in the productivity vanguard that pull ahead of their peers. Per the report, they invest 2.6x more in technology and intangibles and attract more skilled talent than the firms behind them. The mechanism the report emphasizes is one of focus and leverage: frontier firms “freed their top thinkers, engineers, and creatives to work on their toughest problems, and supported them with technology and other intangibles,” and so “experienced outsize returns.” Stalling investment of exactly this kind is named as a core driver of the broader productivity slowdown, which is why the report routes frontier firms to both Capital Allocation (the 2.6x intangibles spend) and Talent (freeing top thinkers; the constraint of insufficient skilled labor supply). The report also notes that laggards aren’t simply replaced — firms in the same sector can coexist without fully competing by serving different customers, workers, or geographies.

Context: “Frontier firms” is a term used in productivity economics (notably OECD research) for the most productive companies in a sector, whose productivity gains diffuse only slowly to “laggard” firms — a gap often cited to explain stagnating aggregate productivity despite continued innovation at the top.

Where this appears

• Rekindling US Productivity for a New Era — the report’s central unit of analysis: productivity-vanguard firms that invest 2.6x more in technology/intangibles, attract skilled talent, and free their top people to outsize returns; tied to Capital Allocation and Talent.