From Population Growth to Firm Demographics: Implications for Concentration, Entrepreneurship and the Labor Share

Abstract

In the U.S., large firms now account for a greater share of economic activity, new firms are being created at slower rates, and workers are receiving a smaller share of GDP. Changes in population growth provide a unified quantitative explanation. A decrease in population growth lowers firm entry rates, shifting the firm‐age distribution toward older firms. Firm aging accounts for (i) the concentration of employment in large firms, (ii) and trends in average firm size and exit rates, key determinants of firm entry rates. Feedback effects from firm demographics generate two‐thirds of the effect. Prior to the decrease, entry rates rose steadily reflecting the earlier baby boom. The glut of firms due to the baby boom lead to rich transitional dynamics within the feedback effects, accounting for more than half the total change. Baby boom induced changes in the firm‐age distribution provide a driving force for the post‐WWII rise and fall in the aggregate labor share. Ignoring changes in population growth attributes all the long run decline in entry rates to a decrease in firm exit rates, which in reality have been only one‐third as large.

Immigration and Business Dynamics: Evidence from U.S. Firms

“…The empirical results in this paper are also related to but set apart from recent literature on entrepreneurship. It builds on work identifying the link between population growth and business entry in the U.S. (Hopenhayn et al, 2018;Karahan et al, 2019) by showing that immigrant workers are particularly active in changing extensive margin firm decisions. This comports with previous literature showing that immigrants are more likely to work at new firms, both as owners and employees (Kerr and Kerr, 2016).…”

Evergreening

“…Both moments refer to the main sample period of our empirical results, 2014:Q4 through 2019:Q4. The model can generate an exit rate in line with the average value for the last 40 years, as documented by Hopenhayn, Neira and Singhania (2022), as well as a reasonable value for the median interest rate spreads reported on the Y-14 loans. 27 Finally, the model does a relatively good job of matching a series of moments on size and productivity of firms at entry and exit, following Lee and Mukoyama (2015): size is measured as employment, and all of these moments are relative to the unconditional average over the entire distribution.…”

Declining Business Dynamism among Our Best Opportunities: The Role of the Burden of Knowledge

“…Over the past few decades, the U.S. population has been aging. Since young people tend to disproportionately found or join new businesses (Ouimet and Zarutskie, 2014), the aging of those receiving PhDs could explain the decline in Figure 1 (Hopenhayn et al, 2018;Karahan et al, 2019). However, if we define "young" as those below the median age of 45 (or any other reasonable cutoff, for that matter), the share of such young founders in the total number of all founders was stable, about 35-40 percent throughout the period studied.…”