Demographic Origins of the Startup Deficit

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WP-Demographic Origins of the Startup Deficit-Karahan, Pugsley, and Sahin
Authors:

Fatih Karahan, Federal Reserve Bank of New York
Benjamin Pugsley, University of Notre Dame
Aysegül Sahin, University of Texas Austin, NBER


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

June 4, 2019

AUTHORS:

Fatih Karahan Benjamin Pugsley Aysegül Sahin

Topics

Taxes, Inequality & Growth

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