Robert W. Fairlie
Professor of Economics and the
Director of the Master’s Program in
Applied Economics and Finance at
the University of California,
Santa Cruz.
Executive Summary
The Kauffman Index of Entrepreneurial Activity is a leading indicator of new business creation in the
United States. Capturing new business owners in their first month of significant business activity,
this measure provides the earliest documentation of new business development across the country.
The percentage of the adult, non-business-owner population that starts a business each month is measured
using data from the Current Population Survey (CPS). In addition to this overall rate of entrepreneurial
activity, separate estimates for specific demographic groups, states, and select metropolitan statistical
areas (MSAs) are presented. The Index provides the only national measure of business creation by specific
demographic groups.
New 2010 data allow for an update to previous reports, with consideration of trends in the rates
of entrepreneurial activity over the fifteen-year period between 1996 and 2010. The Kauffman Index
reveals important shifts in the national level of entrepreneurial activity, and shifts in the demographic
and geographic composition of new entrepreneurs across the country. Key findings for 2010 include:
- In 2010, 0.34 percent of the adult population
(or 340 out of 100,000 adults) created a
new business each month, representing
approximately 565,000 new businesses per
month. The 2010 entrepreneurial activity rate
is the same as the 2009 rate, but represents an
increase from 2007, and represents the highest
level over the past decade and a half.
- The recent upward trend in entrepreneurship
rates contrasts with a recent downward trend
in employer business creation. From 2007 to
2010, the quarterly employer establishment
birth rate dropped from 0.13 percent to 0.10
percent. Over this same period, the monthly
entrepreneurship activity rate increased from
0.30 percent to 0.34 percent. These opposing
trends may be due to the Great Recession and
its high unemployment rates pushing many
individuals into business ownership. These
individuals probably were more likely to start
sole proprietorships and other non-employer
firms instead of starting more costly employer
firms.
- The entrepreneurial activity rate among Latinos
increased from 0.46 percent in 2009 to
0.56 percent in 2010, reaching the highest
level over the past decade and a half.
- The Asian entrepreneurial activity rate
also increased substantially in 2010 (from
0.31 percent to 0.37 percent).
- The African-American and non-Latino white
entrepreneurial activity rates decreased from
2009 to 2010.
- Immigrants were more than twice as likely to
start businesses each month than were the
native-born in 2010. The immigrant rate of
entrepreneurial activity increased sharply, from
0.51 percent in 2009 to 0.62 percent in 2010,
further widening the gap between immigrant
and native-born rates. The native-born rate is
0.28 percent.
- The youngest age group (ages twenty-five
to thirty-four) experienced an increase in
entrepreneurial activity from 2009 to 2010
(0.24 percent to 0.26 percent).
- Over the past decade and a half, Latinos,
Asians, immigrants, and the oldest age group
(ages fifty-five to sixty-four) experienced rising
shares of all new entrepreneurs, partly because
of rising rates of entrepreneurship, but also
because of increasing populations.
- Entrepreneurship rates increased the most
for high school dropouts (0.49 percent to
0.59 percent), and decreased the most for
high school graduates (0.38 percent to
0.34 percent) in 2010, also signaling
that opposing trends may be due to the
Great Recession pushing many individuals
into business ownership because of high
unemployment rates.
- The construction industry had the highest rate
of entrepreneurial activity of all major industry
groups in 2010 (1.60 percent). The secondhighest
rate of entrepreneurial activity was in
the services industry (0.44 percent).
- The entrepreneurial activity rate increased
in the West from 0.38 percent in 2009 to
0.41 percent in 2010. Business-creation rates
decreased in the Northeast and Midwest and
remained the same in the South.
- The states with the highest entrepreneurial
activity rates were Nevada (510 per 100,000
adults), Georgia (510 per 100,000 adults),
California (470 per 100,000 adults), Louisiana
(460 per 100,000 adults), and Colorado
(450 per 100,000 adults). The states with the
lowest entrepreneurial activity rates were
West Virginia (170 per 100,000 adults),
Pennsylvania (180 per 100,000 adults),
Wisconsin (180 per 100,000 adults),
South Dakota (190 per 100,000 adults),
and Indiana (190 per 100,000 adults).
- The states experiencing the largest increases
in entrepreneurial activity rates over the past
decade were Georgia (0.23 percentage points),
Nevada (0.19 percentage points),
Tennessee (0.14 percentage points),
Massachusetts (0.13 percentage points),
California (0.11 percentage points),
Texas (0.11 percentage points),
Kentucky (0.11 percentage points), and
Florida (0.10 percentage points). The states
that experienced the largest decreases in
their rates were Wyoming (-0.18 percentage
points), New Mexico (-0.14 percentage points),
and Alaska (-0.13 percentage points).
- Among the fifteen largest MSAs in the United
States, the highest entrepreneurial activity rate
in 2010 was in Los Angeles (0.62 percent).
The large MSA with the lowest entrepreneurial
activity rate was Philadelphia (0.15 percent).
