Declining Business Dynamism in the U.S. High-Technology Sector

Abstract

The U.S. economy is very dynamic - with firms entering, exiting, expanding, or contracting at all times. More competitive firms grow and replace less-competitive ones. This dynamic process is an important source of productivity growth and sustained economic prosperity in modern economies. New and young firms play an outsized role in this productivity-enhancing dynamic process, and in net job creation.

But, recent trends point to sustained declines in business dynamism and in entrepreneurship across a broad range of sectors in the U.S. economy. While the causes and implications of this development are still being uncovered, it may suggest a lower growth economy and standards of living than otherwise would have been.

We examine how these trends apply to the U.S. high-tech sector - defined here as the group of industries with very high shares of workers in the STEM occupations of science, technology, engineering, and math. Our findings show that the recently documented secular declines in business dynamism that occurred broadly across the U.S. economy during the last couple of decades also occurred in the high-tech sector in the post-2000 period. As part of this decline in dynamism, we find indicators of a slowdown in entrepreneurship in the high-tech sector in the post-2000 period.

This slowdown in the high-tech sector may be especially problematic for all the reasons stated above. High-tech firms also play an outsized role in income, employment, and productivity growth overall and are generally focused on the types of cutting-edge technologies that can drive sustained economic growth. This sector typically is viewed as very entrepreneurial, but we document a pronounced slowdown in such activity in the post-2000 period.

Keywords: high-tech, job creation, STEM, entrepreneurship, firms, growth