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Demographics and the Decline in Firm Entry: Lessons from a Life-Cycle Model

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  • Röhe, Oke
  • Stähler, Nikolai

Abstract

Since the mid-1970s, firm entry rates in the United States have declined significantly. This also holds for other OECD countries over the past years. At the same time, these economies experienced a gradual process of population aging. Applying a tractable life-cycle model with endogenous firm dynamics, we show that falling US firm entry rates can be explained by demographic transition. Specifically, our model simulations suggest that aging can account for up to one third of the observed decrease in US firm entry rates. In addition to the negative effects of a slowdown in working-age population growth on firm entry, our analysis points out that an increase in longevity may also be an important factor contributing to the decline in business dynamism, weighing on both firm entry and exit rates.

Suggested Citation

  • Röhe, Oke & Stähler, Nikolai, 2020. "Demographics and the Decline in Firm Entry: Lessons from a Life-Cycle Model," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224603, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc20:224603
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Demographics and the decline in firm entry: Lessons from a life-cycle model
      by Christian Zimmermann in NEP-DGE blog on 2020-04-08 17:16:55
    2. Demographics and the Decline in Firm Entry: Lessons from a Life-Cycle Model
      by Christian Zimmermann in NEP-DGE blog on 2020-11-27 15:41:16

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    More about this item

    Keywords

    Life expectancy; Demographic transition; Endogenous firm dynamics;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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