Kauffman Foundation white paper reports on declining entrepreneurship rate in the high-tech sector, an important contributor to U.S. economic growth
Report precedes Kauffman unveiling of America's New Entrepreneurial Growth Initiative
(Kansas City, Mo.) Feb. 11, 2014 – As happens every month, economic commentators are arguing over the latest U.S. jobs report showing weak growth. For the future of economic growth, however, more fundamental issues matter.
A new white paper from the Ewing Marion Kauffman Foundation shows sustained declines in business dynamism across a wide swath of the U.S. economy, including the high-tech sector that has been critical for sparking economic growth in recent decades.
The report found indicators of sluggish high-tech entrepreneurship and business dynamism after 2000. The slowdown was particularly evident in the declining trends of both job creation and job destruction from about 2004 onward. Taken together, job creation and job destruction are indicators of the business churning associated with dynamic economic activity.
"Because young high-tech firms are so disproportionately important for innovation and job creation, a slowdown in this sector calls for a new approach to fostering a stronger entrepreneurial economy," said Dane Stangler, vice president of Research & Policy at the Kauffman Foundation. The Foundation will unveil a new initiative geared toward fostering a more broad-based entrepreneurial economy at its live-streamed fifth annual State of Entrepreneurship Address tomorrow.
The study of the high-tech sector draws from industries with very high shares of workers in the "STEM" occupations of science, technology, engineering and math. In the 1990s, the share of young, high-tech firms was rising, even as the proportion of young firms was declining in the overall economy.
But, in the post-2000 period, high-tech sector economic activity has been experiencing a consolidation process that is culling young firms in favor of more mature firms. The Great Recession seems to have exacerbated the drop in high-tech job creation.
Despite the high-tech sector's relatively small size – it represented just 4.1 percent of total private-sector firms in 2011 – high-tech firms are economic powerhouses, serving as key contributors to income generation, job creation and productivity growth, as well as creating productivity gains from adoption of high-tech goods and services.
"Consequently, a slowing in high-tech entrepreneurship could have disproportionate effects on the nation's overall long-term economic growth," said Ian Hathaway, Research Director at Engine, a research and policy group for technology startups, and one of the paper's authors.
In response to concerns over the slowdown in high-tech entrepreneurship, the Kauffman Foundation will introduce America's New Entrepreneurial Growth Initiative at its fifth annual State of Entrepreneurship Address, scheduled Wednesday in Washington, D.C.
The initiative will explore the drivers behind the U.S. entrepreneurship decline and how regulations can help entrepreneurs seeking alternative sources of financing, among other issues.
The event will feature remarks by Kauffman Foundation President and CEO Tom McDonnell.