Jeffrey Sparshott reported this week at The Wall Street Journal Online that, “The U.S. economy is inching along, productivity is flagging and millions of Americans appear locked out of the labor market.
“One key factor intertwined with this loss of dynamism: The U.S. is creating startup businesses at historically low rates.
“The American economy has long relied on fast-growing young companies to fuel job growth and spread the latest innovations. As recently as the 1980s and 1990s, a small number of young firms disproportionately contributed to U.S. employment growth, helping allocate workers and resources to burgeoning segments of the economy.”
The Journal article noted that, “But government data shows a decadeslong slowdown in entrepreneurship. The share of private firms less than a year old has dropped from more than 12% during much of the 1980s to only about 8% since 2010. In 2014, the most recent year of data, the startup rate was the second-lowest on record, after 2010, according to Census Bureau figures released last month, so there’s little sign of a postrecession rebound.”
Graph From The Wall Street Journal
Mr. Sparshott also pointed out that, “The share of employment at such firms, meanwhile, has slipped from nearly 4% to about 2% of private-sector jobs.
“While only a few percentage points, the drop translates into hundreds of thousands of companies and jobs. If the U.S. were creating new firms at the same rate as in the 1980s, that would be the equivalent of more than 200,000 companies and 1.8 million jobs a year.”
The Journal article added that, “The startup slowdown may have a number of causes. Perhaps some companies need more time than backers are willing to provide. Demographics may also explain some of the shift—baby boomers are retiring and millennials are just entering the age bracket that is most common for entrepreneurs.
“Rules and regulations also could be at play. Goldman Sachs economists in part blame the cumulative effect of regulations enacted since the Great Recession for reducing the availability of credit and raising the cost of doing business for small firms, making them less competitive.”
