Entrepreneurial Activity Declines Again in 2013 as Labor Market Strengthens, according to Kauffman Report

New data reveal, for the first time, evidence that the share of "opportunity" entrepreneurship increases with improving economic conditions

Interactive data of annual entrepreneurial activity nationally, by state and select MSAs since 1996 is available at www.kauffman.org/kiea

(KANSAS CITY, Mo.), April 9, 2014 – As the nation's employment rate continued to improve, America's overall business creation rate fell again in 2013.

According to the annual Kauffman Index of Entrepreneurial Activity, released today, the rate declined slightly from 0.30 percent of American adults per month starting businesses in 2012 to 0.28 percent in 2013.

That translates into approximately 476,000 new business owners per month in 2013 compared with 514,000 the year before.

For the first time in the 18 years this report has tracked entrepreneurship activity, the 2013 index includes new data on trends in entrepreneurship among new entrepreneurs who are not coming directly out of unemployment (sometimes called "opportunity" entrepreneurship).

The research indicates that the share of new entrepreneurs who are not most recently jobless was much higher in 2013 than at the end of the Great Recession.
"The 2013 business creation rate signifies a return to levels that we haven't seen since before the recession," said Dane Stangler, vice president of Research and Policy at the Kauffman Foundation, which conducts the annual study. "While we have speculated in recent years that changes in entrepreneurship rates could be driven by labor market conditions, this new data provides the strongest evidence we've seen of this correlation." 

The Kauffman Index of Entrepreneurial Activity is a leading indicator of new business creation in the United States.

It provides the only national measure of business creation by specific demographic groups. The 2013 data allow for an update to annual reports dating back to 1996.

The latest data indicate that 2013 was the second consecutive year to show an entrepreneurial activity decline in the United States.

The Kauffman Index reported last year that the new business creation rate had declined from 0.32 percent in 2011 to 0.30 percent in 2012.

The construction industry attained the highest level of entrepreneurial activity among industry groups in 2013, with a rate of 1.27 percent. The service industry had the second-highest rate, 0.37 percent.

The decline in business creation rates in 2013 was due primarily to a drop in business creation rates among men, but also stemmed from a slight drop in business creation among women.

Following a downward trend that began in 2011, the entrepreneurial activity rate among men declined substantially, from 0.38 percent in 2012 to 0.34 percent in 2013, reaching pre-recessionary levels. The female entrepreneurship rate dropped from 0.23 percent in 2012 to 0.22 percent in 2013.

As they did the previous year, the entrepreneurship rate for all races and ethnicities declined from 2012 to 2013.

For Latinos, the business creation rate declined from 0.40 percent in 2012 to 0.38 percent in 2013.

The Asian entrepreneurial activity rate decreased from 0.31 percent in 2012 to 0.28 percent in 2013; the African-American rate slid from 0.21 percent in 2012 to 0.19 percent in 2013; and the rate for whites dropped from 0.29 percent in 2012 to 0.27 percent in 2013.

Most age groups also experienced declines in business creation rates. The exception was the group aged 45 to 54, whose rate increased from 0.34 percent in 2012 to 0.36 percent in 2013.

Business creation was lowest among the youngest group, aged 20 to 34, whose rate declined from 0.23 percent in 2012 to 0.18 percent in 2013.

Business creation by veterans declined from 0.28 percent in 2012 to 0.23 percent in 2013. The share of all businesses created by veterans declined sharply over the past 18 years as the working-age veteran population declined over this period.
"Related to the findings for race and ethnicity, entrepreneurial activity among immigrants also decreased sharply in 2013, although the business creation rate among immigrants remains nearly twice as high as the native-born rate," said Robert W. Fairlie, the study's author and chair of the Economics Department at the University of California, Santa Cruz.

From a geographic standpoint, entrepreneurial activity rates declined in all regions of the country.

Among states, Montana had the highest entrepreneurial activity rate, with 610 per 100,000 adults creating businesses each month during 2013.

Rounding out the top five states were Alaska (470 per 100,000 adults), South Dakota (410 per 100,000 adults), California (400 per 100,000 adults) and Colorado (380 per 100,000 adults).

The states with the lowest entrepreneurial activity were Iowa (110 per 100,000 adults), Rhode Island (140 per 100,000 adults), Indiana (160 per 100,000 adults), Minnesota (160 per 100,000 adults), Washington (170 per 100,000 adults) and Wisconsin (170 per 100,000 adults).

San Francisco's 0.57 percent entrepreneurial activity rate was the highest among the nation's 15 largest MSAs in 2013. Philadelphia scored the lowest rate, 0.18 percent.

The complete report plus interactive data of annual entrepreneurial activity nationally by state and select MSAs since 1996 is available at www.kauffman.org/kiea.

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About the Kauffman Index of Entrepreneurial Activity
Capturing new founders in their first month of significant business activity, the Kauffman Index of Entrepreneurial Activity provides 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).