We propose a simple explanation for the long-term decline in the US initiation rate. It 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 the survival of the existing company and the average growth during the life cycle have changed little. We show these results in a standard firm dynamics model and examine the approach using interstate variation in labor supply growth. Finally, we show that the long-run entry-level series established using historical establishment tables increases during the 1960s-1970s period of accelerated labor force growth.
That’s from a new AER piece by Fatih Karahan, Benjamin Pugsley, and Ayşegül Şahin. Here are the paper versions with smaller gates.
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