Staff Reports
Demographic Origins of the Startup Deficit
Number 888
May 2019 Revised March 2021

JEL classification: D22, E24, J11

Authors: Fatih Karahan, Benjamin Pugsley, and Ayşegül Şahin

We propose a simple explanation for the long-run decline in the U.S. startup rate. It originates from a slowdown in labor supply growth since the late 1970s, largely pre-determined by demographics. This channel can explain roughly 60 percent of the decline and why incumbent firm survival and average growth over the lifecycle 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 1960-70s period of accelerating labor force growth.

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Author Disclosure Statement(s)

Fatih Karahan

For the research that resulted in “Demographic Origins of the Startup Deficit,” I attest to the following:

1. Financial support for my research came entirely from my employer, the Federal Reserve Bank of New York.

2. I have not received any financial or in-kind support for this research from anyone other than the entities listed above.

3. I have no paid or unpaid positions as officer, director, or board member of any relevant non-profit organizations or profit-making entities.

4. I have no close relative or partners who received financial support from or work in any position at any relevant entity.

5. Some of the results presented in the appendix use data from the Longitudinal Business Database at the U.S. Census Bureau that are not publicly available. These results have been reviewed by the Census to ensure that no confidential information is disclosed. 

Benjamin W. Pugsley

For the research that resulted in “Demographic Origins of the Startup Deficit,” I attest to the following:

1. Financial support for my research came from the University of Notre Dame and the Kauffman Foundation.

2. I have not received any financial or in-kind support for this research from anyone other than the entities listed above.

3. I have no paid or unpaid positions as officer, director, or board member of any relevant non-profit organizations or profit-making entities.

4. I have no close relative or partners who received financial support from or work in any position at any relevant entity.

5. Some of the results presented in the appendix use data from the Longitudinal Business Database at the U.S. Census Bureau that are not publicly available. These results have been reviewed by the Census to ensure that no confidential information is disclosed.

Ayşegül Şahin

For the research that resulted in “Demographic Origins of the Startup Deficit,” I attest to the following:

1. Financial support for my research came entirely from my employer, University of Texas at Austin.

2. I have not received any financial or in-kind support for this research from anyone other than the entities listed above.

3. I have no paid or unpaid positions as officer, director, or board member of any relevant non-profit organizations or profit-making entities.

4. I have no close relative or partners who received financial support from or work in any position at any relevant entity.

5. Some of the results presented in the appendix use data from the Longitudinal Business Database at the U.S. Census Bureau that are not publicly available. These results have been reviewed by the Census to ensure that no confidential information is disclosed.

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