The Slow Death of American Entrepreneurship

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For FiveThirtyEight,  writes: Mark Zuckerberg was a billionaire before age 30 and investors are fretting over the prospect of an another tech bubble, but according to the data, U.S. entrepreneurship is on the decline.

“Business dynamism is inherently disruptive, but it is also critical to long-run economic growth.”

Americans started 27 percent fewer businesses in 2011 than they did five years earlier, according to data from the Census Bureau. As a share of all companies, startups have been declining for more than 30 years.

It isn’t clear what’s causing that decline, which accelerated during the recession but long predates it. The aging of the baby boom generation may be part of the explanation, since people are more likely to start businesses when they are younger. The U.S. economy is also increasingly dominated by large corporations, suggesting deeper structural changes working against small companies. People have pointed to other explanations, from increasing licensure requirements in many industries to high corporate tax rates to a broader decline in innovation and productivity growth.

Whatever the reason, the decline has economists worried. New businesses are akey driver of job growth, responsible for more than 15 percent of new job creation despite accounting for just 2 percent of total employment. And they play a vital role in promoting innovation and productivity gains across the economy. In a recent report from the Brookings Institution, Ian Hathaway and Robert Litan wrote that the decline in entrepreneurship “points to a U.S. economy that has steadily become less dynamic over time.” Read the rest of this entry »