Staff Reports
The Role of Start-Ups in Structural Transformation
January 2016 Number 762
JEL classification: E24, J00, J23, L25

Authors: Robert C. Dent, Fatih Karahan, Benjamin Pugsley,
and Ayşegül Şahin

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, owing to sectors receiving shares of start-up employment that differ from their overall employment shares. The rest is mostly the result of life cycle differences across sectors. Declining overall entry has a small but growing effect of dampening structural transformation.

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