HEC Research Papers Series,
HEC Paris

Abstract: Declining rates of new business formation in the U.S. have been documented in macroeconomic literature but we still know relatively little about its causes and how it might affect innovation. We use individual-level work data to examine trends in new firm formation by U.S. PhD recipients in science and engineering and its causes. Since 1997, the fraction of startup founders with PhDs in science and engineering among all business owners with the same PhDs has declined by 38 percent, and the share of PhDs in science and engineering who work for startups has declined by 30 percent. These trends are joined by a long-term earnings decline for startup founders, especially less experienced ones, and increasing number of R&D and administrative tasks performed by founders, indicating less attractiveness for doctorate recipients to found startups. We use abductive reasoning to examine a plausible explanation for these trends being driven at least in part by an increasing complexity of conducting innovation. Established firms have been able to handle this better than startups through greater division of labor, thereby attracting PhDs in greater numbers. Since economy-wide innovation largely depends on science- and technology-based startups, the development is of great concern.

Keywords: Business Dynamism; High-Tech Entrepreneurship; Startup Rates; Doctorate Degree Recipients; Burden of Knowledge

JEL-codes: J24; O30

32 pages, November 3, 2020

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