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

The US economy has undergone several puzzling changes in recent decades. 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 towards older firms. Heterogeneity across firm-age groups combined with an aging firm distribution replicates the observed trends. 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. Transitional dynamics within these feedback effects are key, accounting for half the total change. Firm aging increases the market share of large firms, which have lower labor shares, driving down the aggregate labor share.