Demographic origins of the startup deficit

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 60 percent of the decline and why incumbent firm survival and average growth over the lifecycle 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.