Entrepreneurship accounts for a smaller share of U.S. businesses, according to a new report from the Kauffman Foundation.
The historically significant role of entrepreneurship in the U.S. is continuing its long decline, according to a new report from the Kauffman Foundation that shows startups account for an increasingly smaller share of U.S. jobs and businesses.
Startups continue to create a substantial number of jobs despite generally anemic economic activity, but the overall pace of entrepreneurship continues a long-term decline that began in the 1980s, reported the foundation in a briefing released this week titled “Where Have All the Young Firms Gone?”
Entrepreneurship represents the most successful route to achieving the American Dream, according to a study of Americans with a net worth of more than $25 million conducted by Millionaire Corner in late 2010. The largest portion of these individuals – who generally came from poor or modest backgrounds – was business owners. According to our research, entrepreneurship accounts for nearly 30 percent of the nation’s $25 million-plus investors.
A dynamic business environment has long been a hallmark of the U.S. economy, said the foundation, and a core aspect of that dynamism has been “a robust pace of business startups,” which contributes substantially to both employment and growth in productivity.
Startups – firms aged five years or less - accounted for nearly half of all U.S. firms in the early 1980s, but now make up less than 35 percent of companies, said the foundation, which bases its report on the most recent Census Bureau Business Dynamics Statistics.
A drop in jobs created by startups accompanies the decline in entrepreneurship. In the 1980s startups accounted for more than 40 percent of job creation by all U.S. firms, said the foundation, but the share has declined to as low as 30 percent in recent years. Similarly, the share of employment by young firms has fallen from 20 percent in the 1980s to 12 percent in 2010. Still, according to census data, 394,000 startups created 2.3 million jobs in 2010.
Though the decline began in the 1980s, the trend accelerated during the recession, said the foundation. While entrepreneurship declined in all states, those with the most entrepreneurial activity in the past, such as California and Massachusetts, experienced the biggest decline, said the foundation.
“These patterns raise a variety of questions about the underlying forces shaping these changes, but more generally, raise questions about whether the United States is becoming less entrepreneurial given the lower pace of startups and the smaller share of activity accounted for by young firms,” said the Kansas City-based nonprofit, which describes itself as the world’s largest foundation devoted to entrepreneurship