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The role of start-ups in structural transformation


Abstract: The U.S. economy has been going through a striking structural transformation?the secular reallocation of employment across sectors?over the past several decades. We propose a decomposition framework to assess the contributions of various margins of firm dynamics to this shift. Using firm-level data, we find that at least 50 percent of the adjustment has been taking place along the entry margin, owing to sectors receiving shares of start-up employment that differ from their overall employment shares. The rest is mostly the result of life cycle differences across sectors. Declining overall entry has a small but growing effect of dampening structural transformation.

Keywords: structural transformation; employment dynamics; sectoral reallocation;

JEL Classification: E24; J00; J23; L25;

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Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2016-01-01

Number: 762