New Business Startups Declined in 2011, Annual Kauffman Study Shows

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Rossana Weitekamp, 516-792-1462, rossana@weitekamp.com
Rose Levy, 646 660 8641, rose@goldinsolutions.com, Goldin Solutions
Barbara Pruitt, 816-932-1288, bpruitt@kauffman.org, Kauffman Foundation

The Kauffman Index shows that, despite a drop from 2010, U.S. startup activity remains above pre-Great Recession levels

(KANSAS CITY, Mo.), March 19, 2012 – Entrepreneurship is alive and well in the wake of the Great Recession, although the rate of new business creation dipped during 2011 and startup founders remained more likely to fly solo than employ others. That's the big take away from the "Kauffman Index of Entrepreneurial Activity," a leading indicator of new business creation in the United States published annually and released today by the Ewing Marion Kauffman Foundation.

The Index shows that 0.32 percent of American adults created a business per month in 2011 – a 5.9 percent drop from 2010, but still among the highest levels of entrepreneurship over the past 16 years. The quarterly employer firm rate also remained essentially flat from 2010 to 2011 at 0.11 percent.

"The Great Recession has pushed many individuals into business ownership due to high unemployment rates," said Robert Litan, vice president of research and policy at the Kauffman Foundation. "However, economic uncertainty likely has made them more cautious, and they prefer to start sole proprietorships rather than more costly employer firms. This 'jobless entrepreneurship' trend negatively effects job creation and the larger economic recovery."
 
Capturing new founders in their first month of significant business activity, the Kauffman Index of Entrepreneurial Activityprovides the earliest documentation of new business establishment across the country. The percentage of the adult, non-business-owner population that starts a business each month is measured using data from the monthly Current Population Survey (CPS), conducted by the U.S. Bureau of the Census and the Bureau of Labor Statistics. In addition to this overall rate of entrepreneurial activity, the Kauffman Index presents separate estimates for specific demographic groups, states and select metropolitan statistical areas (MSAs). It provides the only national measure of business creation by specific demographic groups. The  2011 data allow for an update to annual reports dating back to 1996. Interactive data spanning all 16 years is available at www.kauffman.org/kiea.

Entrepreneurship rates for all races and ethnicities declined from 2010 to 2011. The Latino business-creation rate declined from 0.56 percent in 2010 to 0.52 percent in 2011, but remained at a high level relative to previous years and other demographic groups. The Asian entrepreneurial activity rate also decreased from 0.37 percent in 2010 to 0.32 percent in 2011.

Entrepreneurship growth was highest among 45- to 54-year-olds, rising from 0.35 percent in 2010 to 0.37 percent in 2011. The youngest group (aged 20 to 34) also showed a slight increase. In contrast, the 35- to 44-year-old and 55- to 64-year-old groups experienced declines in entrepreneurial activity rates from 2010 to 2011.

"Entrepreneurial activity rates reflect changing demographics," said Robert W. Fairlie, the study's author and director of the master's program in applied economics and finance at the University of California, Santa Cruz. "Despite a slight decline in entrepreneurial activity rates this year, the share of new 55- to 64-year-old entrepreneurs has risen from 14.3 percent in 1996 to 20.9 percent in 2011 due to an aging U.S. population."

Geographically, entrepreneurial activity rates decreased in all U.S. regions except the Northeast, which experienced a slight increase. Rates remain highest in the West and lowest in the Midwest. Among states, Arizona had the highest entrepreneurial activity rate, with 520 per 100,000 adults creating businesses each month during 2011. Rounding out the top five highest rates were Texas (440 per 100,000 adults), California (440 per 100,000 adults), Colorado (420 per 100,000 adults) and Alaska, with 410 businesses started per 100,000 adults. The states with the lowest rates of entrepreneurial activity were West Virginia (150 per 100,000 adults), Pennsylvania (160 per 100,000 adults), Hawaii (180 per 100,000 adults), Illinois (200 per 100,000 adults), Indiana (200 per 100,000 adults) and Virginia (200 per 100,000 adults).

Other key findings for 2011 include:

  • Both immigrant and native-born entrepreneurial activity declined slightly in 2011; however, immigrants remained more than twice as likely to start new businesses as were the native-born.
  • Entrepreneurial activity decreased slightly for both men and women. For men, the entrepreneurial activity rate decreased from 0.44 percent in 2010 to 0.42 percent in 2011, reversing an upward trend over the past few years. The female entrepreneurship rate decreased from 0.24 percent to 0.23 percent.
  • The Latino share of all new entrepreneurs rose from a little more than 10 percent in 1996 to 22.9 percent in 2011, reflecting longer-term trends of rising entrepreneurship rates and a growing share of the U.S. population. The Asian share of new entrepreneurs also rose substantially from 1996 to 2011, but remains relatively small at 5.3 percent. The white share of new entrepreneurs declined during this time period, while the African American share increased slightly.
  • By industry, construction had the highest entrepreneurial activity rate at 1.68 percent, continuing an upward trend over the past several years, followed by the services industry at 0.42 percent. The manufacturing startup rate was the lowest among all industries, with only 0.11 percent of non-business owners starting businesses per month during 2011.
  • The entrepreneurship activity rate among the least-educated group (high school dropouts) decreased from 0.59 percent in 2010 to 0.57 percent in 2011 but remains significantly higher than for groups with other educational levels. The largest decrease in entrepreneurial activity occurred for college graduates.
  • Among the United States' 15 largest metropolitan statistical areas, Los Angeles had the highest entrepreneurial rate (580 per 100,000 adults) in 2011. Chicago and Detroit had the lowest rates at 180 per 100,000 adults.

Infographic


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summarizing 2011 data
  

Data Visualization


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from 1996 - 2011