Mariassunta Giannetti's webpage

Prompted to Start: How Generative AI is Transforming Entrepreneurship  

Abstract:
Generative AI's impact on employment remains contested, with concerns about worker displacement competing against predictions of productivity-driven growth. We show that entrepreneurial entry is a critical margin through which GenAI reshapes labor demand. Following the diffusion of the new technology, industries with higher task-level exposure to GenAI experience 20\% more startup formation than less-exposed industries, and an increasing proportion of startups offer new AI services and products. This entry is geographically dispersed, extending beyond traditional innovation hubs into regions with limited venture capital and thin specialized labor markets. While individual startups in exposed industries enter at a smaller scale, aggregate entry generates net employment growth at the industry level. Crucially, GenAI changes who becomes an entrepreneur: founding teams are increasingly drawn from occupations with high exposure to GenAI, suggesting that the technology enables new combinations of human capital rather than simply replacing workers. Our findings reveal that business dynamism partially offsets the labor-demand contractions GenAI produces among incumbent firms.