Demographic origins of the startup deficit

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

Keywords: firm dynamics; macroeconomics; demographics; business dynamism;

JEL Classification: E24; D22; J11;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2019-05-01

Number: 888

Pages: 46 pages