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Federal Reserve Bank of New York
Staff Reports
Demographic origins of the startup deficit
Fatih Karahan
Benjamin Pugsley
Aysegul Sahin

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.

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Fatih Karahan & Benjamin Pugsley & Aysegul Sahin, Demographic origins of the startup deficit, Federal Reserve Bank of New York, Staff Reports 888, 01 May 2019.
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Keywords: firm dynamics; demographics; business dynamism; macroeconomics
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