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Demographic Origins of the Start-up Deficit

By: Contributor(s): Material type: TextTextPublication details: American Economic Review; 2024Description: 1986-2023ISSN:
  • 0002-8282
Subject(s): Online resources: Summary: We propose a simple explanation for the long-run decline in the US start-up rate. It originates from a slowdown in labor supply growth since the late 1970s, largely predetermined by demographics. This channel can explain roughly half of the decline and why incumbent firm survival and average growth over the life cycle have changed little. We show these results in a standard model of firm dynamics and test the mechanism using cross-state variation in labor supply growth. Finally, we show that a longer entry rate series imputed using historical establishment tabulations rises over the 1960s-1970s period of accelerating labor force growth.
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Article Index Article Index Dr VKRV Rao Library Vol. 114, No. 7 Not for loan AI460

We propose a simple explanation for the long-run decline in the US start-up rate. It originates from a slowdown in labor supply growth since the late 1970s, largely predetermined by demographics. This channel can explain roughly half of the decline and why incumbent firm survival and average growth over the life cycle have changed little. We show these results in a standard model of firm dynamics and test the mechanism using cross-state variation in labor supply growth. Finally, we show that a longer entry rate series imputed using historical establishment tabulations rises over the 1960s-1970s period of accelerating labor force growth.

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