Demographic Change and Start-up Activity in German Districts: A Human Capital Perspective

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In the coming decades, most highly developed economies face aging populations and workforces. With these demographic changes, the pool of potential business founders grays: Until 2025, the share of 50 to 64-year-old among the working-age population will increase by almost ten percent. Previous empirical evidence reveals that the age-specific propensity to start a business follows an inversely u-shaped pattern. If these age effects proportionally translate from the individual level to the overall entrepreneurial activity in an economy, the aging of potential business founders implies negative consequences for economic growth,industrial restructuring and innovative performance. In this paper, we suggest however that older potential business founders contribute to regional entrepreneurial activity in a more indirect way. Knowledge spillovers or the transfer of business experience could for exampleleverage overall start-up activity, even if relatively few older potential business founders start a new business by themselves.

In this study, we investigate the contribution of different age groups of potential business founders to new firm formation in West German regions between 2002 and 2005. Regression results at this aggregation level show that the age-performance pattern is asymmetrically hump-shaped: Age group 30 to 49 years is the key performer, but older potential business founders aged 50 to 64 years still perform significantly better than the youngest age group (18 to 29 years). The application of system GMM estimation hereby controls for a potential simultaneity bias.

Moreover, we show that the comparatively high performance of older potential business founders is moderated by but robust against the inclusion of age differentials in earnings potential in dependent employment, demand effects and migratory processes, and by the unequal distribution of start-up relevant human capital across age groups. Finally, we find that younger, prime age and older potential business founders are complementary to each other with respect to their contribution to regional firm formation.


  Katharina  Frosch

Katharina Frosch // Ludwig Maximilians University, Munich School of Management and Max Planck Institute for Demographic Research, Rostock


Research Associate, Christian Göbel
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