We offer a simple explanation for the long-term decline in the rate of business creation in the United States. This stems from a slowdown in labor supply growth since the late 1970s, largely predetermined by demographics. This channel can explain about half of the decline and why incumbent survival and average life cycle growth have changed little. We show these results in a standard model of business dynamics and test the mechanism using cross-state variation in labor supply growth. Finally, we show that a longer series of imputed entry rates using historical establishment tabulations increases during the period of accelerating labor force growth in the 1960s and 1970s.
This comes from a new piece from the AER by Fatih Karahan, Benjamin Pugsley and Ayşegül Şahin. Here is less closed versions of the document.
