The entry rate of U.S. employer businesses has declined for more than 30 years. We use a novel dynamic decomposition framework to show that regardless of its causes, the direct effects of the continued decline in the entry rate and its delayed effects on the firm age distribution together play a major role in the slowing of trend employment growth and the emergence of jobless recoveries. We identify changing demographic structure of the population and increased import competition as leading factors behind the decline in startup activity. Received September 1, 2015; editorial decision April 5, 2018 by Editor Francesca Cornelli. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

A large literature shows that the self-employed underreport their income to tax authorities. In this paper, we quantify the extent to which the self-employed also systematically underreport their income in U.S. household surveys. We use the Engel curve describing the relationship between income and expenditures of wage and salary workers to infer the actual income, and thus the reporting gap, of the self-employed based on their reported expenditures. On average, the self-employed underreport their income by about 25%. We show that failing to account for such income underreporting leads to biased conclusions in a variety of settings.

We propose a simple explanation for the long-run decline in the US start-up rate. It originates from a slowdown in labor supply growth since the late 1970s, largely predetermined by demographics. This channel can explain roughly half of the decline and why incumbent firm survival and average growth over the life cycle have changed little. We show these results in a standard model of firm dynamics and test the mechanism using cross-state variation in labor supply growth. Finally, we show that a longer entry rate series imputed using historical establishment tabulations rises over the 1960s–1970s period of accelerating labor force growth. (JEL D22, D25, E24, J11, J22, J23, M11)

About one-half of all startups fail within five years, and those that survive grow at vastly different speeds. Using Census microdata, we estimate that most of these differences are determined by ex ante heterogeneity rather than persistent ex post shocks. Embedding such heterogeneity in a firm dynamics model shows that the presence of ex ante heterogeneity (i) is a key determinant of the firm size distribution and firm dynamics, (ii) can strongly affect the macroeconomic effects of firm-level frictions, and (iii) helps understand the recently documented decline in business dynamism by showing a disappearance of high-growth startups (“gazelles”) since the mid-1980s. (JEL D22, D24, E24, J23, L11, M13)

The U.S. economy has been going through a striking structural transformation--the secular reallocation of employment across sectors--over the past several decades. We propose a decomposition framework to assess the contributions of various margins of firm dynamics to this shift. Using firm-level data, we find that at least 50 percent of the adjustment has been taking place along the entry margin, due to sectors receiving different shares of startup employment than their employment shares. The rest is mostly due to life cycle differences across sectors. Declining overall entry has a small but growing effect of dampening structural transformation.

We investigate the importance of job-to-job (JJ) transitions for cyclical wage dynamics. By exploiting cross-state variation, we find that wage growth is tightly linked to variation in the JJ transition probability, and conditional on this, the job finding probability of the unemployed has no explanatory power. We investigate the robustness of our results to several caveats and find the result to hold. Finally, we discuss the implications of our findings for competing theories of wage dynamics.