Demographic Origins of the Startup Deficit

Karahan, Fatih; Pugsley, Benjamin; Sahin, Aysegül

doi:10.1257/aer.20210362

Abstract

We propose a simple explanation for the long-run decline in the U.S. startup rate. It originates from a slowdown in labor supply growth since the late 1970s, largely pre-determined by demographics. This channel can explain roughly half of the decline and why incumbent firm survival and average growth over the life-cycle have changed little. We show these results in a standard model of firm dynamics and test the mechanism using cross-state variation in labor supply growth. Finally, we show that a longer entry rate series imputed using historical establishment tabulations rises over the 1960–70s period of accelerating labor force growth.

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Demographic Origins of the Startup Deficit

Abstract

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