Start-Up Job Share
From 2001 to 2011, the percent of Americans working at start-up companies dropped 0.4 percentage point.
The Slow Decline of American Entrepreneurship
By Tim Kane
Start-up companies are the reason America’s economy is more innovative, prosperous, and dynamic than the economies of other industrialized countries around the world. New companies create roughly 3 million jobs every year, while existing companies tend to shed one million jobs — it is no secret why a healthy entrepreneurial culture is important. Think of it this way: Roughly one in 10 U.S. companies are founded each year, and these young firms create 100 percent of all net new jobs. Even in gross terms, start-ups punch above their weight, with 16 percent of all new jobs created by start-ups. Older firms create fewer jobs per firm, but, on average, cut even more, for a net negative impact.
While start-ups have always played an important role in the U.S. economy, the extent to which they drive job creation was, until recently, underappreciated. However, thanks to new data from the federal government, we are able to identify job creation across all firms according to their date of “birth.” Yet, as important as this insight is, the data, which only goes back as far as 1977, also shows an alarming downward trend: America’s entrepreneurship rate is declining.
During the Carter Administration, 14 percent of American companies were start-ups. That rate declined by one percentage point during the Reagan years, two points during the recession of the George H. W. Bush presidency, held steady under Clinton, dropped a percentage point under George W. Bush, and then dropped two full points during the first term of Barack Obama.
We can only speculate why entrepreneurship is declining, but it seems that America’s economic culture is trending toward the European model. In Europe, as well as Japan, large corporations are the norm, as are ample welfare programs and an erosion of familial bonds. America’s history of entrepreneurship is strongly rooted in a culture of hard work and self-reliance. Unfortunately, bureaucratic regulations are growing at the same time start-ups are declining. Coincidence?
— Tim Kane is an economist and Research Fellow at the Hoover Institution at Stanford University.
Next Up in the Index:
Additional Resources
Don’t Crush the Ability of Entrepreneurs and Small Businesses to Raise Capital
Sources
2014 Index of Culture and Opportunity
Culture | Poverty & Dependence | Opportunity
Preface | Introducing the Index of Culture and Opportunity | Overview of 2014 Index | The Blessings of Liberty
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