Edward Conard

Top Ten New York Times Bestselling Author

  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
Upside of Inequality Oxford Unintended Consequences

AI Summary. The U.S. startup rate fell from 13% in 1979 to 10% by 2007, a decline of nearly 25%, and the authors estimate that slower growth in U.S. labor supply since the late 1970s accounts for roughly two-thirds of that drop. Models of firm dynamics imply that slower labor supply growth requires slower firm entry.

Fatih Karahan, Benjamin Pugsley and Ayşegül Şahin Federal Reserve Bank of New York
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Two-thirds of the decline in US startup rate since 1979 is attributed to the slowdown in US labor supply growth, according to @NYFed @Aysegul_Sahin @BenjaminPugsley @FatihKarahan.

Does slower labor supply growth explain the decline in startups?

Core argument: The U.S. startup rate fell from 13% in 1979 to 10% by 2007, a decline of nearly 25%, attributed largely to demographic shifts affecting labor supply growth.

The startup rate, which was 13% in 1979 and fell to 10% by 2007, has declined by nearly 25%, largely due to demographic shifts affecting labor supply growth. Since the late 1970s, the slowdown in U.S. labor supply growth explains approximately two-thirds of this decline. This trend is linked to the need for growing labor demand to match labor supply, achievable through either a decrease in real wages or the entry of new firms. The widespread decline in startup rates across markets is attributed to the universal impact of reduced labor force growth. Models of firm dynamics suggest that slower labor supply growth necessitates slower firm entry, leading to a lower startup rate. This demographic-driven explanation aligns well with observed data, highlighting the critical role of labor supply dynamics in shaping the entrepreneurial landscape.

Takeaways by Macro Roundup® AI

  1. The U.S. startup rate fell from 13% in 1979 to 10% by 2007, a decline of nearly 25%, attributed largely to demographic shifts affecting labor supply growth.
  2. The slowdown in U.S. labor supply growth since the late 1970s explains roughly two-thirds of the decline in the startup rate, since growing labor demand must match labor supply through either lower real wages or new firm entry.
  3. Models of firm dynamics imply that slower labor supply growth requires slower firm entry and thus a lower startup rate, an explanation consistent with the decline in startup rates across markets.

"....In 1979, the startup rate—measured as the share of new employers as a fraction of all employers—was 13 percent. In 2007, before the onset of the Great Recession, it was roughly 10 percent, an almost 25 percent decline.....We propose a simple and novel explanation for these patterns. The startup rate is linked in general equilibrium to the pace of labor supply growth, which for reasons largely pre-determined by demographics, slowed dramatically in the late 1970s. Why should labor supply growth affect the startup rate at all? Ultimately, growing labor supply requires growing labor demand, and this can only happen through a decline in the real wage that allows incumbent firms to expand or through entry of new firms. A lesson from models of firm dynamics, starting with Hopenhayn (1992), is that in the long run, free entry ensures that shifts in labor supply are absorbed entirely at the entry margin. Along the balanced growth path of a standard model of firm dynamics extended to incorporate labor supply growth, slower growth in labor supply requires slower growth in the number of firms and thus a lower startup rate.....This explanation fits the data very well. The slowdown in U.S. labor supply growth since the late 1970s explains roughly two-thirds of the declining startup rate; it explains the widespread declines across markets since the labor force growth slowdown affected them nearly universally; and it explains the stability of average incumbent dynamics conditional on their age...."

Fatih Karahan, Benjamin Pugsley and Ayşegül Şahin, "Demographic Origins of the Startup Deficit," Federal Reserve Bank of New York, May 2019, https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr888.pdf

Showing 489 database articles primarily about either Productivity, Cronyism, Incentives/Risk-Taking, Innovation/Research, Institutional Capabilities, Intangibles, Investment, Startups, or Workforce Reorganization