American Entrepreneurship in Decline

The next president will face an imminent challenge: the nation’s marked decline in new job and business creation is one of the fundamental dilemmas of our time.

July 25, 2016

The United States has always been a nation of entrepreneurs, the upstarts who take risks and challenge the established order so they can build a better life. But Americans today are less likely to change jobs, relocate, or start a company than in recent decades. This decline in entrepreneurship is one of the fundamental challenges of our time — with far-reaching implications for all Americans.

The next president will inherit an economy in which entrepreneurs play a limited role. The Great Recession was particularly damaging to America’s entrepreneurial ecosystem and the ripple effects are still being felt today. For example, during the five years of “recovery,” from 2010 to 2014, nearly 60 percent of U.S. counties actually saw more businesses close than open.

The entrepreneurial decline is not a new phenomenon. The U.S. economy has steadily become less entrepreneurial over the past 30 years. That decline turned into a rapid collapse following the Great Recession, when the economy produced hundreds of thousands fewer new businesses than it did in previous recovery periods, marking a lost generation of new enterprise.

The Great Recession’s impact on U.S. entrepreneurship cannot be overstated. For the first time in decades, more firms closed than opened not only in 2009, but in 2010 and 2011 as well. Even by 2013, the economy was still struggling to replace dying companies with new ones.

As the number of startups wanes, older incumbent firms increasingly dominate. In fact, between 1993 and 2013, the share of firms in the economy aged 16 and over increased 12 percentage points, and the share of the workforce employed in such firms grew from 62 percent to 73 percent.

This matters for two reasons. First, older firms tend to be less dynamic, and an incumbent-dominated economy is one that may be less likely to achieve consistently strong rates of growth. Second, startups account for nearly all new net job creation.

Despite relatively strong job growth in the years following the recession, much of the growth has been driven by a few “knowledge economy” hubs while many industrial metropolitan areas continue to stagnate. Other measures of dynamism are declining at the same time: Americans are less likely to pack up and move than ever before, and they’re less likely to switch jobs, making widespread access to opportunity even more challenging.

The decline of American entrepreneurship and the unevenness of economic opportunity will be defining issues in the years ahead. The next administration and Congress will need to refocus on how to revive the engine of dynamism that has made our economy the world leader.

This article originally appeared in The Daily Beast.

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