Demographic Origins of the Startup Deficit
46 Pages Posted: 24 May 2019
Date Written: May 2019
We propose a simple explanation for the long-run decline in the startup rate. It was caused by a slowdown in labor supply growth since the late 1970s, largely pre-determined by demographics. This channel explains roughly two-thirds of the decline and why incumbent firm survival and average growth over the lifecycle have been little changed. We show these results in a standard model of firm dynamics and test the mechanism using shocks to labor supply growth across states. Finally, we show a longer startup rate series, imputed using historical establishment tabulations, that rises over the 1960-70s period of accelerating labor force growth.
Keywords: firm dynamics, demographics, business dynamism, macroeconomics
JEL Classification: D22, E24, J11
Suggested Citation: Suggested Citation