Demographic Origins of the Startup Deficit

Fatih Karahan, Benjamin Pugsley, Ayşegül Şahin

NBER Working Paper No. 25874
Issued in May 2019
NBER Program(s):Economic Fluctuations and Growth, Monetary Economics

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.

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Document Object Identifier (DOI): 10.3386/w25874