The United States has long been viewed as having among the world's most entrepreneurial, dynamic, and flexible economies. It is often argued that this dynamism and flexibility has enabled the US economy to adapt to changing economic circumstances and recover from recessions in a robust manner. While the evidence provides broad support for this view, the outcomes of entrepreneurship are more heterogeneous than commonly appreciated and appear to be evolving in ways that could raise concern. Evidence along a number of dimensions and a variety of sources points to a US economy that is becoming less dynamic. Of particular interest are declining business startup rates and the resulting diminished role for dynamic young businesses in the economy.We begin by describing how the concept of entrepreneurship is reflected in existing data on firm age and size. The recent addition of firm age to official statistics represents a dramatic improvement in the information available to entrepreneurship researchers. We then turn to a discussion of the role of startup firms in job creation. Business startups account for about 20 percent of US gross (total) job creation while high-growth businesses (which are disproportionately young)

We thank Sinem Buber, Mita Goldar and Matthew Levin from ADP for their support on the project. We also thank Steve Davis, Jan Eberly and Jonathan Parker for comments on prior drafts. As part of the University of Chicago data use contract, ADP reviewed the paper prior to distribution with the sole focus of making sure that the paper did not release information that would compromise the privacy of their clients or reveal proprietary information about the ADP business model. The views expressed in the paper are the authors' and do not necessarily reflect the views of ADP or the National Bureau of Economic Research. Additionally, the analysis and conclusions set forth here are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w27159.ack NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

The pace of job reallocation has declined in all U.S. sectors since 2000. In standard models, aggregate job reallocation depends on (a) the dispersion of idiosyncratic productivity shocks faced by businesses and (b) the marginal responsiveness of businesses to those shocks. Using several novel empirical facts from business microdata, we infer that the pervasive post-2000 decline in reallocation reflects weaker responsiveness in a manner consistent with rising adjustment frictions and not lower dispersion of shocks. The within-industry dispersion of TFP and output per worker has risen, while the marginal responsiveness of employment growth to business-level productivity has weakened. The responsiveness in the post-2000 period for young firms in the high-tech sector is only about half (in manufacturing) to two thirds (economy wide) of the peak in the 1990s. Counterfactuals show that weakening productivity responsiveness since 2000 accounts for a significant drag on aggregate productivity.

The National Establishment Time Series (NETS) is a private sector source of U.S. business microdata. Researchers have used state-specific NETS extracts for many years, but relatively little is known about the accuracy and representativeness of the nationwide NETS sample. We explore the properties of NETS as compared to official U.S. data on business activity: The Census Bureau's County Business Patterns (CBP) and Nonemployer Statistics (NES) and the Bureau of Labor Statistics' Quarterly Census of Employment and Wages (QCEW). We find that the NETS universe does not cover the entirety of the Census-based employer and nonemployer universes, but given certain restrictions NETS can be made to mimic official employer datasets with reasonable precision. The largest differences between NETS employer data and official sources are among small establishments, where imputation is prevalent in NETS. The most stringent of our proposed sample restrictions still allows scope that covers about three quarters of U.S. private sector employment. We conclude that NETS microdata can be useful and convenient for studying static business activity in high detail.

A growing body of evidence indicates that the U.S. economy has become less dynamic in recent years. This trend is evident in declining rates of gross job and worker flows as well as declining rates of entrepreneurship and young firm activity, and the trend is pervasive across industries, regions, and firm size classes. We describe the evidence on these changes in the U.S. economy by reviewing existing research. We then describe new empirical facts about the relationship between establishment-level productivity and employment growth, framing our results in terms of canonical models of firm dynamics and suggesting empirically testable potential explanations.

A large literature documents declining measures of business dynamism including high-growth young firm activity and job reallocation. A distinct literature describes a slowdown in the pace of aggregate labor productivity growth. We relate these patterns by studying changes in productivity growth from the late 1990s to the mid 2000s using firm-level data. We find that diminished allocative efficiency gains can account for the productivity slowdown in a manner that interacts with the within-firm productivity growth distribution. The evidence suggests that the decline in dynamism is reason for concern and sheds light on debates about the causes of slowing productivity growth.

The pace of job reallocation has declined in the United States in recent decades. We draw insight from canonical models of business dynamics in which reallocation can decline due to (i ) lower dis persion of idiosyncratic shocks faced by businesses, or (ii ) weaker marginal responsiveness of businesses to shocks. We show that shock dispersion has actually risen, while the responsiveness of business-level employment to productivity has weakened. Moreover, declining responsiveness can account for a significant fraction of the decline in the pace of job reallocation, and we find suggestive evidence this has been a drag on aggregate productivity. (JEL D24, E24, E32, J21, J23, J24, L60)