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This and other findings based on data on U.S. firms and establishments with paid employees is included in the Census Bureau’s Business Dynamics Statistics (BDS) briefing. Partially funded by the Ewing Marion Kauffman Foundation, the BDS provides annual business data from 1976 to 2010.

Reduced numbers of new firms negatively affect the U.S. economy, which relies on startups as critical contributors to job creation. From March 2009 to March 2010, U.S. private-sector firms created a net -1.8 million jobs. The 394,000 companies that began operations in 2010, however, created 2.3 million jobs, in spite of the anemic economy.

Young firms – those five years old or younger – now comprise fewer than 35 percent of all firms, down from nearly 50 percent in the early 1980s. This decrease is accompanied by a decline in the share of employment accounted for by entrepreneurial firms from 20 percent in the 1980s to 12 percent in 2010. The share of job creation also has fallen, from more than 40 percent in the 1980s to about 30 percent in recent years.

The national decline is seen in all states, although some states have fared better than others. While the report does not analyze causes for individual state activity, it shows that state-level drops ranged from 2 percent to 14 percent when changes from the 1987-1989 and 2004-2006 business cycle peaks were compared. Further, states that experienced the largest declines also were, for the most part, those in which young businesses had the highest initial shares of business activity in the 1980s. These states typically were in the West, Southwest and South – the regions hit hardest by the recession.

In a study that measures annual employer and non-employer business creation in the United States, the Kauffman Index of Entrepreneurial Activity also showed a decline in the number of startups nationally and in all regions except the Northeast. In this study, founders were more likely to be sole proprietors than they were to create jobs.

This report is the sixth BDS Brief. The BDS includes measures of business startups, establishment openings and closings, and establishment expansions and contractions in both the number of establishments and the number of jobs. The BDS data provide these new statistics annually for 1976-2010, with classifications for the total U.S. private sector by broad industrial sector, firm size, firm age and state. The BDS is the result of a collaboration between the U.S. Census Bureau’s Center for Economic Studies and the Ewing Marion Kauffman Foundation, with additional support from the U.S. Small Business Administration. Further information about the BDS can be found at www.census.gov.

The study concludes that, while the number of spots on the list that change as companies enter and exit the top 500 is an “example of how mind-bendingly and marvelously complex the world of capitalism can be,” it is an unreliable economic indicator.

The report, “What Does Fortune 500 Turnover Mean?”, confirms that the pace of turnover on the list has escalated since 1980, and rising turnover may have negative implications for consumers and households. However, the churn actually may be driven by idiosyncratic events that are clustered in time and economic sector, rather than by broad economic trends, according to the study’s authors, Dane Stangler and Sam Arbesman.

From 1955 to 1993, when the Fortune 500 list included only industrial firms, median turnover was 29 companies per year. Fortune began including non-industrial firms from industries such as commercial banking, diversified financial services, health care, life insurance, retail, transportation and utilities in 1994, and median turnover climbed to 39 per year from 1995 to 2011. Some of the rising volatility in the 1990s likely reflects the higher level of industry diversity, as well as more inherent volatility among service sectors.

Since their entrance onto the Fortune list, service companies have accounted for a larger share of exits and entries than industrial sectors have, with the exception of 1998, when service and industrial firms were even. Over time, as service-based companies come to account for an increasing share of the list, they naturally account for more turnover, as well. Even if service sector companies do not necessarily experience higher turnover, simply casting a wider sectoral net increases the probability of turnover because of broader economic representation.

Firms also often enter and exit the list multiple times, with each counting as a turnover. Over the past 50 years, 1,332 companies have come and gone once, and 248 companies have come and gone twice – with one company making and then dropping off the list 14 times. This factor, the report says, reveals more about companies’ revenue performance than about larger economic trends.

Fortune 500 turnover does, however, expose changes in technology, capital markets and the divergent fates of various economic sectors. For example, mergers and acquisitions have generated considerable turnover among large companies, whether public or private, because M&A activity affects rankings, as well as movement on and off the list. In addition, changes in Fortune 500 turnover, particularly higher annual volatility, could be related to increases in IPOs, which represent more competitors, more acquisition targets and the rise of newer industries, and which would be reflected in Fortune 500 turnover as those newly public companies grew.

According to the report titled “Post-IPO Employment and Revenue Growth for U.S. IPOs, June 1996–2010,” the volume of initial public offerings fell nearly 70 percent in the past decade from the average volume in the prior two decades. This drop—from an average of 298 domestic operating companies per year during 1980–2000 to an average of only 90 per year during 2001–2011—was even more precipitous among small companies.

The study’s authors say that the plunge in IPOs during the past decade concerns policymakers because fast-growing entrepreneurial firms create the nation’s most significant employment, and, for these young companies, IPOs long have been considered important for raising capital to fuel continued growth. Further, policymakers worry that the more dramatic descent in IPOs among small companies, whom recent research points to as the nation’s primary job creators, has negatively affected aggregate employment.

According to the study, the 2,766 companies that went public in the United States from June 1996 through 2010 employed 5.062 million people prior to their IPOs and 7.334 million in 2010, a 45 percent increase, adding 822 jobs per company after their IPOs. Their inflation-adjusted aggregate sales increased 96 percent, from $1.32 trillion in the year before going public to $2.58 trillion in fiscal 2010. Using these numbers, the report’s authors calculate that, had the number of 1980-2000 IPOs been maintained during 2001-2011, the 2,288 additional IPOs would have created 1.881 million more jobs.

Emerging growth companies (EGC), defined as domestic operating companies less than 30 years old that are not spinoffs, rollups, buyouts or demutualizations, account for 1,700 of the 2,766 companies that went public during the study period. The EGCs’ post-IPO employment increased 156 percent, and inflation-adjusted sales jumped 259 percent, representing far faster growth than the 1,066 other IPOs, which increased employment by 29 percent and revenue by 78 percent.

Employment grew rapidly for the 1996-2000 cohorts. Significant post-IPO growth continued for cohorts that had IPOs after 2000, though at a much more subdued pace. After 2000, only the 2004 cohort, which included Google, Salesforce.com and Texas Roadhouse, grew dramatically. This may be explained by fewer opportunities for “home-run” firms, some of which represent Schumpeterian innovation, in which a firm or group of firms contribute to the reorganization of entire economic sectors.

Among EGC firms that made IPOs from 1996 through 2000, only 29 percent were still operating 10 years later. However, acquisition was a far more common outcome than was failure (55 percent vs. 16 percent). Biomedical IPOs had the highest survival and lowest bankruptcy rates among all sectors; the highest failure rates were in manufacturing and retail.