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Demographic Origins of the Startup Deficit

Author

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  • Fatih Karahan
  • Benjamin Pugsley
  • Aysegül Sahin

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 that a longer startup rate series imputed using historical establishment tabulations rises over the 1960-70s period of accelerating labor force growth.

Suggested Citation

  • Fatih Karahan & Benjamin Pugsley & Aysegül Sahin, 2019. "Demographic Origins of the Startup Deficit," Working Papers 19-21, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:19-21
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    10. Alon, Titan & Berger, David & Dent, Robert & Pugsley, Benjamin, 2018. "Older and slower: The startup deficit’s lasting effects on aggregate productivity growth," Journal of Monetary Economics, Elsevier, vol. 93(C), pages 68-85.
    11. Bianca Barbaro & Giorgio Massari & Patrizio Tirelli, 2022. "Who killed business dynamism in the U.S.?," Working Papers 494, University of Milano-Bicocca, Department of Economics, revised Aug 2022.
    12. Gee Hee HONG & ITO Arata & SAITO Yukiko & Thi-Ngoc Anh NGUYEN, 2020. "Structural Changes in Japanese SMEs: Business Dynamism in Aging Society and Inter-Firm Transaction Network," Policy Discussion Papers 20003, Research Institute of Economy, Trade and Industry (RIETI).
    13. Charles I. Jones, 2022. "The End of Economic Growth? Unintended Consequences of a Declining Population," American Economic Review, American Economic Association, vol. 112(11), pages 3489-3527, November.
    14. Eren Gürer, 2022. "Rising markups and optimal redistributive taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(5), pages 1227-1259, October.
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    17. Hannah Rubinton, 2021. "Business Dynamism and City Size," Economic Synopses, Federal Reserve Bank of St. Louis, issue 4, pages 1-2, February.
    18. Feld, Lars P. & Schmidt, Christoph M. & Schnabel, Isabel & Truger, Achim & Wieland, Volker, 2019. "Den Strukturwandel meistern. Jahresgutachten 2019/20," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201920.
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    22. Clara E. Piano, 2022. "The family and the state: a public choice perspective," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 35(3), pages 383-405, September.

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    More about this item

    Keywords

    Firm dynamics; Demographics; Business Dynamism; Macroeconomics;
    All these keywords.

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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