Entrepreneurial Activity Remained Strong in 2007 With Major Shifts Among Men, Women and Immigrants

The rate of entrepreneurial activity among women dropped sharply in 2007 while the activity rate among men and immigrants surged, according to a national assessment of entrepreneurial activity by the Ewing Marion Kauffman Foundation.

According to the Kauffman Index of Entrepreneurial Activity, the only annual study to measure business startup activity for the entire United States adult population at the individual owner level, 495,000 new businesses per month were started in 2007 with 0.30 percent of the adult population (or 300 out of 100,000 adults) involved in the startup process. This entrepreneurial activity rate is a slight increase over the 2006 rate of 0.29 percent.

"At a time when the nation is concerned about the economy, it is heartening to see that entrepreneurial activity continues to rise," said Carl Schramm, president and chief executive officer of the Ewing Marion Kauffman Foundation. "The entrepreneurial sector is a critical factor in our nation's economic growth. Even during times of recession, new firms have been responsible for the bulk of new jobs and innovations in America. That is why it is vital to track startup trends like we track other economic indicators."

Several surprising findings from the Kauffman Index are:

• Immigrants far outpaced native-born Americans in entrepreneurial activity, increasing from 0.37 percent in 2006 to 0.46 percent in 2007. Immigrants are now substantially more likely to start businesses than are native-born Americans, which remained constant at 0.27 percent.
• Men are now twice as likely as women to start a business each month, a larger differential than in any previous year of the KIEA study. For men, the entrepreneurial activity rate increased from 0.35 percent in 2006 to 0.41 percent in 2007. The rate decreased from 0.23 percent to 0.20 percent for women.
• The entrepreneurial activity rate among Latinos increased from 0.33 percent in 2006 to 0.40 percent in 2007, the largest increase for any major ethnic or racial group.

The Kauffman Index of Entrepreneurial Activity remains the only study of its kind that provides states with some measurement for how their rate of business startups compare to the nation. Covering the past 12 years, this report has become an important tool for state and national economic leaders to gauge progress," said Robert W. Fairlie, professor of economics at the University of California, Santa Cruz, who developed the Kauffman Index.

Regional Patterns

Entrepreneurial activity reflects strong regional patterns with increased startup activity in the Midwest and the West, but decreased in the Northeast. The entrepreneurial activity rate increased slightly in the South.Entrepreneurial activity varied significantly by state in 2007. The 10 states with the highest entrepreneurial activity rates were Idaho, the District of Columbia, Arizona, Tennessee, Louisiana, Wyoming, Vermont, Montana, Georgia and California.
The 10 states with the lowest entrepreneurial activity rates were West Virginia, Alabama, Delaware, Pennsylvania, Ohio, Connecticut, Rhode Island, Hawaii, Washington and Virginia.

Among the 15 largest metropolitan areas in the United States, the highest entrepreneurial activity rates were in Phoenix, Riverside-San Bernardino, Atlanta, Los Angeles and Miami. Philadelphia posted the lowest rate of entrepreneurial activity.

While the entrepreneurial activity rate has remained roughly consistent over the past decade, the Kauffman Index reveals important shifts in the demographic and industry composition of new entrepreneurs across the country. Other key findings for 2007 include:

• Non-Latino white and African-American business creation rates increased slightly from 2006 to 2007 while Asian entrepreneurship rates slightly declined.
• Entrepreneurial activity rates are highest among the least-educated and most- educated groups. College graduates showed the highest rates of entrepreneurial activity recorded since the study began.
• Although entrepreneurial activity rates increased for the youngest group, ages 20-34, rates remained lower for this age group* than for any other age group. Those in age groups 35-44 and 45-54 experienced increases in entrepreneurial activity. Rates decreased for the oldest age group, ages 55-64.
• The construction industry had the highest entrepreneurial activity rate of all major industry groups in 2007. The second-highest entrepreneurial activity rate was in the services industry. Manufacturing had substantially lower entrepreneurial activity than all other industries.

Data for the Kauffman Index of Entrepreneurial Activity are derived from the monthly Current Population Survey (CPS), a national population survey conducted by the U.S. Bureau of the Census and the Bureau of Labor Statistics. The detailed demographic information available allows researchers to estimate rates of entrepreneurial activity by race, education, region, age and immigrant status and is the most up-to-date estimate of new business activity and the only estimate of business creation by detailed demographic group. Unlike other studies that primarily capture the creation of new employer firms, the Kauffman Index of Entrepreneurial Activity captures all adults 20-64 who initially start a business, including those who own incorporated or unincorporated businesses and those who are employers and non-employers. Capturing new business owners in their first month of significant business activity serves as a leading indicator of new business creation in the United States.