Demographic Origins of the Startup Deficit

46 Pages Posted: 24 May 2019

See all articles by Fatih Karahan

Fatih Karahan

Federal Reserve Bank of New York

Benjamin W. Pugsley

University of Notre Dame - Department of Economics

Aysegul Sahin

Federal Reserve Bank of New York

Date Written: May 2019

Abstract

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

Karahan, Fatih and Pugsley, Benjamin W. and Sahin, Aysegul, Demographic Origins of the Startup Deficit (May 2019). FRB of New York Staff Report No. 888 (2019), Available at SSRN: https://ssrn.com/abstract=3392995 or http://dx.doi.org/10.2139/ssrn.3392995

Fatih Karahan (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Benjamin W. Pugsley

University of Notre Dame - Department of Economics ( email )

Notre Dame, IN 46556
United States

Aysegul Sahin

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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