The Secular Decline in Business Dynamism in the U.S

decline in business dynamism is evident in a pronounced declining trend in the pace of both gross job creation and gross job destruction. An important component of these declining trends has been the decline in the firm startup rate. The decline in the startup rate has yielded a significant decline in the share of employment accounted for by young firms – this share has declined by almost 30 percent over the last 30 years. Young firms exhibit enormous volatility – many fail, but amongst those that survive are very fast growing firms that contribute substantially to job creation. We find that the changing firm age distribution accounts for a substantial fraction of the decline in the overall pace of business dynamism, but we find that other compositional changes work in the opposite direction. The well-known shift in economic activity away from manufacturing to service and retail industries is a shift toward sectors that historically exhibited a higher pace of business dynamism. Consideration of different patterns by sector are important not just for compositional reasons but because of large differences in the within-sector trend declines in business dynamics across sectors. The retail and service sectors not only have exhibited the largest increases in employment shares but are also sectors with especially large declines in the pace of business dynamics. These two sectors have also experienced very large declines in the share of activity accounted for by young firms – and as such, the shifting age composition accounts for a very large share of the declining dynamism in these sectors. It has apparently become less advantageous to be a young entrepreneurial firm in retail and services, and this has contributed significantly to the decline in the pace of business dynamism in these sectors.