2/3/2011 8:27:30 AM By
With unemployment rates stubbornly high and the global economy increasingly competitive, the United States needs to better understand businesses, policies to support businesses, and, ultimately, how to spur job creation. Jobs don’t just appear or disappear; they are created (and destroyed) by businesses that are reacting to market conditions and opportunities. While our national statistical system is increasing its capacity to produce statistics on these dynamic processes, policymakers could better target job creation programs if the statistical system collected more data about how businesses finance operations and investment in innovation, especially at the regional/local level. Further, to bolster the value of data currently produced, we need to nourish active data user communities to advance the substantive scientific understanding of job creation policies and educate policymakers about the importance and utility of the data.
Read more on the AmStat website
2/3/2011 7:59:21 AM By
Updated Post 2/3/2011
NFIB is out with an updated report on the state of small business credit as of the end of 2010. This is probably the most important annual report on small business credit that's produced in the United States right now because the Federal government doesn't have any meaningful ongoing monitoring of small business credit, a topic I have an editorial on in the forthcoming American Statistical Association magazine for February 2011. NFIB's current report is notable on many topics but I wanted to highlight a few that might be lost in their importance.
- Forty-eight percent of small businesses attempted to borrow funds in 2010 while 3 percent of small business reported attempting to raise equity capital.
Measuring attempts to get equity investments is very difficult and indeed we worked with NFIB on this question in their current survey. So, here, I think it's important to recognized the sheer magnitude of difference between those who seek debt rather than equity in a given year but also to realize that this 3 percent estimate is very imperfect. In my own opinion, equity investment questions are particularly open to differential reporting when asked in the very aggregate rather than by very specific categories/relationships.
- "Almost one-quarter (24%) of small employers currently use credit cards and no other bank credit source. The overwhelming majority of this group does not appear interested in obtaining more credit."
The U.S. seems to be uniquely placed among countries in the proportion of small businesses using mainly credit cards for financing. I am not surprised by this statistics but I thought their second conclusion that for a very specific group of business owners, credit cards are all that is needed and they are not seeking addition financing.
- The percentage of small employers applying for credit fell from 55 percent in 2009 to 48 percent in 2010. The percentage approved for credit rose somewhat, leaving about the same number accessing credit in 2010 as accessed it in 2009.
This is why these types of questions are important in a time series. Even though the same number of businesses appeared to get credit there was a large shift in those applying.
- If an application for a line or a loan is rejected, it pays small business owners to try at a second or third institution. While the success rate declines with each successive institution approached, approvals appear high enough at fall-back institutions to warrant the effort. Beyond attempts at three institutions, success appears rare. Cards are different. Ninety-five (95) percent of apply- cants got one on the first attempt or did not get one at all.
This last point was interesting I thought particularly for small business owners. I don't know of an other place that gathers information quite like this.
Original Post 6/10/2009
Today, Kauffman is hosting a conference in New York discussing "Financing the Entrepreneurial Recovery." Although I am not attending, I thought it would be helpful to highlight the topic of finance and survey questions and some example survey questions which are being used by the National Federation of Independent Businesses (NFIB) to track small business financial conditions. Let us start with an extract from June 2009 Small Business Economic Trends on the credit markets:
Overall, loan demand is down due to widespread postponement of investment in inventories and historically low plans for capital spending. Cash conservation is a top priority in uncertain times. In addition, the credit worthiness of many potential borrowers has deteriorated in the recession, leading to more difficult terms and higher loan rejection rates (even with no change in lending standards). Twenty-eight (28) percent reported all their borrowing needs met (down two points) compared to nine percent who reported problems obtaining desired financing (up one point; not seasonally adjusted). The net percent reporting all borrowing needs satisfied fell 3 points to 19 percent. The percent of owners reporting loans harder to get rose to 16 percent of all firms, the highest reading since the 1980-82 recession period. So, it appears that as the recession drags on, financing becomes more difficult to arrange. But only 5 percent of the owners reported “finance” as their #1 business problem, up a point from April, but statistically unchanged for years. The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted net negative 15 percent (more owners expect that it will be “harder” to arrange financing), 3 points worse than the April reading.
While the actual results here are very interesting and nuanced, let's turn to the questions used to gather this information. I am very thankful to Denny Dennis at NFIB who was nice enough to pull these questions for me for some research we are doing for an upcoming OECD-Kauffman workshop.
- 18. If you borrow money regularly (at least once every three months) as part of your business activity, how does the rate of interest payable on your most recent loan compare with that paid three months ago? 1. Much higher 2. Higher 3. Same 4. Much lower 5. Lower 7. Inapplicable, do not borrow regularly
- 18a. Are these loans easier or harder to get than they were three months ago? 1. Easier 2. Same 3. Harder 4. Don't know
- 18b. Do you expect to find it easier or harder to obtain your required financing during the next three months? 1. Easier 2. Same 3. Harder 4. Don't know
I like this set of questions but did want to point out that there are only a few small businesses which regularly enough borrow money to answer this question. I looked quickly at a similar question we asked of the Kauffman Firm Survey population (new businesses in 2004) and found only about 12 percent reported applying for new or renewed loans or lines of credit in calendar year 2007. I don't see in the report the percentage of all small businesses which actually applied in the last three months but have to imagine it is biased towards the bigger firms in the sample.
- 19. If you borrowed within the last three months for business purposes and the loan maturity was 1 year or less, what interest rate did you pay? __________ % or Prime + ___________
This question appears to show a real drop in interest rates paid relative to previous years which would seem to make sense. The wording to this question would seem to capture a larger share of firms.
- 20. During the last 3 months was your firm able to satisfy its borrowing needs? 1. Yes 2. No 3. Did not want to borrow
We asked a similar question in the Kauffman Firm Survey this year but worded differently, "During calendar year 2007, was there any time when [NAME BUSINESS] needed credit, but did not apply because you or others associated with [NAME BUSINESS] thought the application would be denied?" The two questions actually look at slightly different things, satisfaction of borrowing needs vs. needing credit but not applying. It'd be interesting to understand how firms interpretted both questions. On a quick read, NFIB's question seems a broader and worded in a way which I suspect respondent firms would respond better.
- 25. Compared to three months ago: c. Is trade credit, that supplier financing of purchases: 1. Easier to get 2. Harder to get 3. No change 4. Never use trade credit
I don't know much about trade credit but have heard this reported in Europe as a real issue of concern.
- 3. What is the single most important problem facing your business today? (Please circle only ONE of the following.) 4. Financing & interest rates
Intereestingly, this question peaked in mid-2008 and now remains quite low in comparison to other options (namely sales). Their response categories for this set of questions appears fairly complete and has shown some huge movements in the last year or two.
- 7. Were your net earnings or "income" (after taxes) from your business during the last calendar quarter higher, lower or about the same as they were for the quarter before?
- 7a. If higher or lower, what is the most important reason? (Circle only ONE.) 6. Financing costs
Wow. This is such a diverse array of questions with seemingly something for everyone. Unfortunately, NFIB doesn't go back to the same firms over time so we can only get these index type of questions. It'd be great for research purposes if they were able to do more of a longitudinal sample if only for a year.
2/2/2011 7:13:14 AM By
For some time there has been a growing argument in the statistical community about the need to go beyond measuring national well-being only in terms of Gross Domestic Product output (see Marketplace story
, or less independent sources such as Sightline
), but it seems to me that recent events in the Middle East will cement a place for measures beyond GDP. Specifically, I took note this morning of an article from Gallup
tracing the decline in reported wellbeing among Tunisians and Egyptians leading up to the current political changes. As Gallup reported, while GDP in both countries was increasing, the percentage of population reporting to be "thriving" decreased significantly in both countries. For Egypt, those thriving went from 29 percent in 2005 to 13 percent in 2008 and was at 11 percent in 2010. For Tunisia, the decline was from 24 percent in 2008 to 14 percent in 2010. So, if these two cases are to be believed, the Danish appear to be safe in their prospects for revolution and Bulgaria and Cambodia appear to have some concerns (see overview from Gallup
11/19/2010 6:33:30 AM By
Thursday new data from the Bureau of Labor Statistics's Business Employment Dynamics program was published covering the U.S. economy through the first quarter of 2010
. It's quite a puzzling picture that it paints overall and for looking at entrepreneurship specifically.
First, BLS finds that from December 2009 to March 2010 the gross job losses in the U.S. economy hit their lowest point on record for this particular time series. This means, that the 6.4 million private sector job losses in the quarter were lower than any other quarter since 1992. When looking at gross losses as a percentage of total employment in the economy, total losses, along with each of its components - losses in contracting establishments and losses from closing establishments - hit or tied series lows. Taking both of these things together then it seems the mass layoffs and closings of the previous couple of years might have peaked - something we can find much reason to celebrate.
But, this severe downturn in downturns is not mirrored by increases in hirings. Indeed at the same time, the gross job gains from opening establishments hit its second lowest point (by percentage) on record and its lowest numerical point. This means that opening establishments in this period only contributed a little more than 1.1 million jobs to the economy, down from 1.9 million jobs in 2000.
I will be spending a lot of time with this data in the coming couple of months along with expected data from the Census Bureau's Business Dynamics Series. Obviously there is a lot of important information to be garnered here.
11/19/2010 4:00:00 AM By
The New York Times
had an interesting piece this week on huge number of small business owners entering Congress
. They attributed all the data to "The Agenda" but I cannot for the life of me figure out who this group is. I thought I'd throw this up in case others are aware of good sources for data on the backgrounds of Congressional members, particularly related to entrepreneurship and innovation?
11/18/2010 6:21:52 AM By
The OECD has a new statistical brief
out on entrepreneurship that focuses heavily on timely indicators of entrepreneurial activity. While these new indicators are not fully comparable across countries, the OECD focuses on the within country changes that have occurred recently.
Number of New Enterprises, 2006=100
The report has many other things from the OECD's core indicators which now have several years of time series data, but most of the interest will fall on the timely data. This downturn seems to have affected negatively most employer business entries in different countries. Because of the tightening of credit markets associated with the recent recessions, this isn't entirely surprising but is significant because this and the World Bank's recent data
are the most concrete measures of new, larger business entries across countries. Neither report looks at self-employment. I know that Legatum also has a new Prosperity Index
out but I haven't been able to review it yet.
I don't think the OECD has it's new country-level data posted on its website yet, but academics interested in that data should watch as it should be updated at any time. A more detailed publication with the data will follow in the spring 2011.
11/15/2010 2:00:00 AM By
Research using intellectual property administrative records continues to advance at a brisk pace with some really exciting new developments. I'll give a couple of updates from very different strands of activity that I am aware of. I doubt I am doing anyone full justice in my summaries, but hopefully you will explore further!
Most interestingly from my perspective are some of the work happening at the OECD and other venues which is trying to bring trademark and copyright filings into the discussion. Patent data have been the dominant source for researchers for some time, largely due to its easy availability and efforts by folks like NBER to make new versions of the data easily available. While still very early, this work has potential to open up new means of using these other types of IP to understand innovations which might not be as technical but more process oriented. I saw some of this work presented last week at the OECD as an update to this working paper
but there appears to be a lot of other opportunities to look into this topic
. Now, since trademarks are more common they appear to be even more messy than patents when it comes to attempting to do matches, etc. Thus, I am still cautious in my reading of some of these findings because the match rates are not strong and some of the data which the OECD is matching too is least representative or accurate for small and new businesses. We want more types of businesses in our samples than just those that patent but things get complicated quickly once doing so. It will take some time for scholars to figure out good means of making sense of some of this chaos.
I am booked with other activities during Global Entrepreneurship Week, but if I weren't I'd love to attend "Patent Statistics for Decision Makers 2010
." Interesting agenda which seems to offer a broad overview of some leading areas of patent-based research from the U.S., European Union, and others. The last year has seen the proliferation of economists within patent offices. I think this will be a good thing. Indeed, the U.S. PTO snagged one of our best academics - Stuart Graham (read background docs on their emerging research strategy
) - to be their first Chief Economist and I learned last week the United Kingdom has also hired someone. So, seems to be the potential for a lot of change in this area if only because new ideas and resources are flowing in.
Lastly, I want to point to some work from Grid Thoma
(and others I am not entirely positive). It's a new dataset on patenting firms in USPTO and EPO/PCT that has been disclosed for research purposes. This dataset covers the whole population of patent documents and allows a user to query directly the patenters in the business directories and link it with other complementary information such as firms demographics, financial statement, ownership information, etc. The dataset is accompanied by an extensive paper describing originating dataset, methodology, and software code used to create it. More information on data and paper can be found at www.epip.eu/datacentre.php
. With so many versions of patent data proliferating out there, I would love feedback from users of some of these data as to their strengths and weaknesses.
11/5/2010 6:02:18 AM By
Hats off to Andrew Reamer at Brookings for another great advocacy piece on the U.S. federal statistical system. "Putting America to Work: The Essential Role of Federal Labor Market Statistics"
is a call-to-action for policy makers to create a labor market statistical system which actually tracks labor needs, educational attainment, and other supply and demand issues in a more comprehensive and real-time manner. It is time that we stopped obscuring the inequalities and the failures (and successes) of our education system through a hamstrung statistical system. For too long we have operated blindly with regard to our labor inputs and outputs and Andrew has many concrete recommendations for bringing these measures together. I wanted to call my readers' attention to a section where Andrew talks about some innovations occurring currently:
Local Employment Dynamics: LED links and analyzes millions of workforce administrative records, particularly establishment and employee wage records from state unemployment insurance systems. An experimental program for a decade, Congress approved permanent status for the program in 2009. With annual funding of $14 million, LED is in the first of a three-year expansion plan. LED’s Quarterly Workforce Indicators analyzes workforce dynamics such as hires, fires, turnover, and wage levels by geography (state, metro, county, workforce investment board) and demographic characteristics (age, sex). OnTheMap visualizes the relation- ship between where people work and reside. A third product, a job-to-job flows tool, will show how defined groups of workers (e.g., in a particular industry and geography, with particular demographic characteristics) move through the economy over time. LED is close to having 50-state coverage. Over the next two years, with proper funding, it plans to add worker characteristics of occupation, educational attainment, race, and ethnicity.
Statewide Longitudinal Data Systems: Statewide longitudinal data systems are NCES-supported, state-managed efforts that track individual progress through formal education programs (pre-kindergarten to postsecondary) and into the workforce. Forty- one states and DC have received NCES grants, totaling $515 million since FY2006. NCES and ETA are encouraging the matching of worker job, wage, and training history with academic history. The Census Bureau’s LED offers the potential to link education data with workforce outcomes across state lines. A complete set of 51 SLDS that link education and workforce microdata would greatly aid understanding of educational program outcomes and career path patterns and so inform student choices of careers and schools, employer choice of workers, educational program design, and public policies.
Real-Time LMI: Using $4 million in Recovery Act funds, ETA is supporting an eight-state consortium’s development of an innova- tive real-time LMI project for green jobs in the Northeast. Through use of intelligent software, job ads on the web are regularly “scraped” and analyzed to collect current and trend information about job vacancies by geography, occupation, industry, required levels of education and experience, and earnings levels. The information is auto-coded (into standard occupational and industry coding structures) and parsed (to categorize and understand the meaning of the words/phrases contained in the ads). The tech- nology eliminates the time lag between data collection and data production common to most publicly-produced data sources. Real-time LMI will enable vacancy rate estimation, six- and 12-month projections of occupational demand, and better under- standing of the demand for and supply of community college certificates and industry certifications. If successful, and with proper funding, real-time LMI technology could be applied to all regions and occupations.
10/13/2010 5:57:36 AM By
Researchers who follow data on internet and phone connectivity know how spotty comparable international data is. For households, this is a fact, and when we move into the connectivity of businesses across countries, the data just doesn't exist. So, I was curious today when a new publication from European Commission came out covering "E-communications
" across the EU at the end of 2009. While I was disappointed to not see anything in their survey about how the households were using electronic communications to facilitate business (think of all the reports of people running small Internet businesses on the side), I was struck by one measure I found in the report - "calling over the Internet."
So when measuring if anyone in the household used their computer to make a phone call, the authors found surprisingly little change since 2008 but a lot of heterogeneity across countries. Lithuania and Latvia came in at the top, with more than 60 percent of households reporting these activities while Portugal and Spain came in at the bottom around 10 percent.
As someone who has relied on a digital phone to work for the last six years and because I have had many interactions with companies attempting to globalize which were relying on boundary-less communications like Skype, I think there is something in these statistics worth more of a look. At the least, these statistics seem to point to another indicator of the extent to which a particular country is internationalized.
10/13/2010 5:25:42 AM By
The World Bank Group has released two additional years of data as a part of its Entrepreneurship Database
. For most countries, data is now current through 2009, thus reporting some of the first international entrepreneurship statistics since the economic crisis began. With 112 countries, many with several years time-series, the World Bank Entrepreneurship Database is worth a look for many academics looking for other measures to test entrepreneurship patterns within countries. It’s a parallel effort to some of the popular Doing Business
research and reports different demographics about limited liability corporations within the countries covered.
I expect this chart covering new business entry density in different development classes of countries will get the most press coverage with the current release.
It shows a not so positive picture for new business entry in the developed economies and a relatively bright picture in many developing economies. While the developed economies continue to see higher entry rates, they also saw trend lines which were significantly more effected by the financial crisis.