Working Paper: NBER ID: w25874
Authors: Fatih Karahan; Benjamin Pugsley; Ayegul Ahin
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.
Keywords: startup rate; labor supply growth; demographics; firm dynamics
JEL Codes: D22; E24; J11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Labor supply growth (J20) | Startup rate (M13) |
| Decline in labor supply growth (J20) | Net entry rate (J11) |
| Startup rate (M13) | Decline in net entry rate (J11) |
| Labor supply growth (J20) | Aggregate exit rate (C43) |
| Labor supply growth (J20) | Stability of incumbent firms (L25) |
| Labor supply growth shocks (J49) | Firm entry (L26) |
| Labor supply growth elasticity (J20) | Startup rate (M13) |
| Labor supply growth (J20) | Startup rate elasticity (M13) |