Demographic Origins of the Start-up Deficit
Fatih Karahan, Benjamin Pugsley, Ayşegül Şahin
American Economic Review · 2024 · Volume 114 · Issue 7
Abstract
We propose a simple explanation for the long-run decline in the US start-up rate. It originates from a slowdown in labor supply growth since the late 1970s, largely predetermined 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 1960s–1970s period of accelerating labor force growth.
Keywords
Firm Behavior: Empirical Analysis, Intertemporal Firm Choice: Investment, Capacity, and Financing, Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital, Aggregate Labor Productivity, Demographic Trends, Macroeconomic Effects, and Forecasts, Time Allocation and Labor Supply, Labor Demand, Production Management
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