Annie Lowrey documents that decline, Matt Yglesias offers a partially optimistic hypothesis:
…people are founding fewer new businesses. But why?
One possibility is that the link to population aging is quite literal. A study by Vivek Wadhwa, Raj Aggarwal, Krisztina Holly, and Alex Salkever that looked specifically at “high-growth” industries found that the typical successful founder is 40. Not someone who’s at the tail-end of his career, but not someone who’s fresh out of school either. That’s in part because “professional networks were important to the success of their current business for 73 percent of the entrepreneur,” and it takes time to achieve that success. Mark Zuckerberg founded a great company when he was in college, but that kind of super-young founder is the exception not the rule — most people need some practical experience and contacts to succeed.
And back in the early 1990s, there were a lot of people in their late-thirties and early forties…
Nowadays that cohort of people’s prime founding years are behind them. There is another large cohort of people coming up, but right now they’re too young to be peak entrepreneurs. This cool CNN graphic shows that the most common age in the United States right now is 22 and 23, and that’s followed by 53 and 52.
The story about aging is so well-known that people tend to neglect this sub-trend of the youth bulge. But right now we’re at a moment where a lot of inexperienced workers are entering the labor market, and 10 to 20 years from now we’ll be in a moment when a lot of experienced workers are founding new businesses. But for the past 10 years, we’ve been seeing a demographic trend that’s unfavorable to entrepreneurship.
There are a few relevant questions:
1. At any point in time, are there external benefits or external costs to having more new businesses founded?
2. As organizational capabilities increase with progress, does market equilibrium serve up larger and older firms? It seems so.
3. What are the external social costs and benefits of that progression?
In poor, developing economies, I think of high levels of petty entrepreneurship as a negative, rather than a positive. Might the United States be a bit the same way? Yet the continuation of The Great Stagnation makes that a hard line to buy into enthusiastically.
I thank Robin Hanson for a useful conversation related to this blog post.