The Secular Decline in Business Dynamism in the U . S . June 2014

decline is evident in a pronounced declining trend in the pace of both gross job creation and gross job destruction and in declining trends in alternative measures of establishment and firm level volatility. An important component of these declining trends is a marked decline in the firm startup rate. A recent finding in the literature is that the changing composition of U.S. businesses cannot account for the decline in dynamism. This is partly because the changing industrial composition of the U.S. economy actually works in the opposite direction. The implication is that much of the decline in dynamism should be viewed as occurring within detailed industry, firm size and firm age categories. To explore the factors underlying this within-cell decline in dynamism, we address two sets of closely related questions in this paper: First, what types of startups have exhibited the largest decline and, relatedly, what types of businesses have exhibited the largest decline in dynamism? Second, is the decline in dynamism accounted for by a decline in the variance of idiosyncratic shocks impacting firms or by a decline in the responsiveness of firms to the shocks?