United States’ new business formation rate continues dropping steadily

Spend some time walking through Silicon Valley or New York City, and you’ll likely leave under the impression that entre­pre­neur­ship is alive and well in the United States. But spend some time wading through some of the latest census data, and you may come away with a very different impression.


New business formation is on the decline across the United States. (Courtesy of WRCOG)

“Without the new jobs created by business startups, the Great Recession would have been even deeper, with many more jobs lost,” Robert Litan, Kauffman’s vice president of research and policy, said in a statement. “Unfortunately, new firm formation has waned since the 1980s, and the recession accelerated the decline.”

Consequently, businesses less the five years in existence now represent merely 35 percent of all companies, down from the 50 percent they represented three decades ago, and unsurprisingly, that’s been accompanied by a decrease in the share of employment at those young firms, down from 20 percent to 12 percent. The trend is present to some degree in every single state, with those in the west, south and southwest regions seeing the greatest dropoffs in entre­pre­neur­ship.

The BDS analysis reaffirms similar findings published by Kauffman earlier this year. The group’s latest entre­pre­neur­ship activity index showed that 0.32 percent of adults created a business per month last year — a 5.9 percent drop from 2010 but still slightly higher than pre-recession levels. Moreover, new business formation rates among both immigrants and native-born inidividuals as well as that of all races and ethnicities tapered off between 2010 and 2011.

Those across-the-board declines suggest the country is growing steadily less entrepreneurial, and according to Litan, the trend must be reversed in order to strengthen the United States’ economic recovery.

“If we are to achieve and sustain a hearty recovery, policymakers, educators and organizations that help entrepreneurs commercialize their technologies must be willing to address every obstacle that stands in the way of new business formation,” Litan said.

Follow On Small Business and J.D. Harrison .

J.D. Harrison covers startups, small business and entrepreneurship, with a focus on public policy, and he runs the On Small Business blog.

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