Working Papers:

An Aging Dynamo: Demographic Change and the Decline of Entrepreneurial Activity in the United States

Abstract:
The rate of new business startups has fallen drastically over the last thirty-five years, a trend that accelerated after the year 2000. Other measures of business dynamism, such as the job reallocation rate, are consistent with this trend. This has raised serious concern, given the effect that young, high-growth firms have been shown to have on employment, and may also have on innovation and growth. The timing of this decline coincides with the start of a steady increase in both the life expectancy and average age of the workforce. I document that an individual's propen- sity to select into entrepreneurship follows a 'hump shape' as they age. To account for both individual behavior and aggregate trends, I construct a life cycle model of entrepreneurial choice, studying a number of channels that link demographic forces to entrepreneurial selection. I find that demographic channels can account for a large portion of the recent decline in startup activity. This model predicts that entrepreneurial activity will continue to decline as the pool of potential entrepreneurs continue to age. I conclude with a discussion of the potential policy tools that will affect individual's life cycle risk attitudes and the predicted effects that such measures will have on the rate of new business startups.

The Murder-Suicide of the Rentier: Population Aging and the Risk Premium

with Alan M. Taylor

Abstract:
Population aging has been linked to global declines in interest rates. A similar trend shows that equity risk premia are on the rise. An existing literature can explain part of the decline in the trend in safe rates using demographics, but has no mechanism to speak to trends in relative asset prices. We calibrate a heterogeneous agent life-cycle model with equity markets, showing that this demographic channel can simultaneously account for both the majority of a downward trend in the risk free rate, while also increasing premium attached to risky assets. This is because the life cycle savings dynamics that have been well documented exert less pressure on risky assets as older households shift away from risk. Under reasonable calibrations we find declines in the safe rate that are considerably larger than most existing estimates between the years 1990 and 2017. We are also able to account for most of the rise in the equity risk premium. Projecting forward to 2050 we show that persistent demographic forces will continue push the risk free rate further into negative territory, while the equity risk premium remains elevated.

A Match Made in Maastricht: The Average Treatment Effect of the EMU on Trade

Abstract:
The currency union effect on trade has been a contentious topic, with a wide range of estimates on the true size of gains. One fundamental issue underlying many estimates is the lack of a accurate control group against which to compare outcomes, making it hard to understand the degree to which makes existing estimates even harder to interpret from the perspective of policy makers. Estimates of gains within the eurozone tend to be smaller, while the sovereign debt crisis in Europe caused many to question the long term viability of the union. It is crucial for the public debate over the costs and benefits of eurozone membership to bring more clarity to our understanding of the benefits from trade that such a union provides to its members. I propose a novel approach to this literature that applies inverse propensity score weighting as well as local projections to study both the traditional static estimates of trade as well as forecasts of the effect of currency unions on trade over time. I find that the static effect of currency unions on trade are in general still quite large for currency unions in general, but quite small for the emu. However, I find the puzzling result that the currency union effect on trade for the euro declined over the period from implementation until the recession in 2008. Since the expected effect should be fixed over time this suggests a deeper understanding of the simultaneous policy changes that take place over the period that may bias static effects upwards.

Coming Soon:

Stuck in the Middle with You: Structural Change and Inequality

with Andrew Padovani

The Question:

When industries grow at different rates how do labor market frictions, coupled with age specific life cycle occupational choices, affect the distribution of wages and wealth?


Early take:

Age compositions of industries and occupations suggest that younger workers are more flexible in allocating toward industries with rapid wage growh. This can be explained in a life cycle model with fixed cost of reallocating labor, which in turn generates Kuznets curves when trends in wage growth different between two industries.

Aging and Asset Prices in the Long Run

with Alan M. Taylor

The Question:

How has the age structure of a population affected returns on safe and risky assets in long run historical data?