U.S. Entrepreneurial Activity Drops for Second Straight Year

'Necessity entrepreneurship' isn't a phenomenon that occurs only in emerging economies and countries reeling from natural disasters like the Philippines -- it happens here in the U.S. as well. And as the overall health of the economy improves, the number of individuals engaged in entrepreneurial activity as a way to 'make ends meet' continues to drop. This shift away from being self-employed contributed to a drop in business creation rates for a second straight year. 

According to the annual Kauffman Index of Entrepreneurial Activity, released earlier this month, 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.

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 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." 

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 http://www.kauffman.org/kiea

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