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The Capital Structure Decisions of New Firms

According to this study, nearly 75 percent of most firms’ startup capital is made up in equal parts of owner equity and bank loans and/or credit card debt, underscoring the importance of liquid credit markets to the formation and success of new firms.

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Contrary to widely held beliefs that startup companies rely heavily on funding from family and friends, this research paper reports that external debt financing such as bank loans are the more common sources of funding for many companies during their first year of operation. According to the study, nearly 75 percent of most firms’ startup capital is made up in equal parts of owner equity and bank loans and/or credit card debt, underscoring the importance of liquid credit markets to the formation and success of new firms.

The research paper, titled The Capital Structure Decisions of New Firms, is second in a series of Kauffman Firm Survey (KFS) studies. The KFS surveyed nearly 5,000 businesses founded in 2004 and tracks them annually over their early years of operation. The survey focuses on the nature of new business formation activity and characteristics of the firms and owners over time. This dataset provides a rich picture, and a first-time glimpse, of the early capital structure decisions of new firms.

Interestingly, the Capital Structure paper also found that high-tech firms are more likely to get outside equity investments in their first year of operations than any other type of company. According to the data, high-tech firms received an average of $31,216 in this type of financing, compared with firms overall, which received only $7,000 on average.

Other key findings in the Capital Structure paper include:

  • Outside debt (financing through credit cards, credit lines, bank loans, etc.) was the most important type of financing for new firms, followed closely by owner equity. These two sources accounted for about 75 percent of startup capital.
  • Insider debt (from friends, family, and spouses) and outsider equity were much less important sources of startup capital.
  • Owner debt and insider equity were the least important sources for startup capital.
  • Firms with high credit scores (low risk) started businesses with much higher levels of startup capital than firms with low credit scores. The average amount of startup capital was $136,000 and $50,000 respectively. These compare with about $78,000 for firms overall.
  • High-tech firms with high Dun & Bradstreet Credit Scores (low risk) started with nearly $275,000 in financial capital. More than $100,000 of this financing was from outside equity investors such as venture capitalists and other informal investors.
  • Outside equity financing was the most important source of startup capital for high-tech firms with high credit scores.

Education and Tech Entrepreneurship

This report discusses the results of a survey of 652 U.S.-born chief executive officers and heads of product development in 502 engineering and technology companies established from 1995 through 2005 to determine qualities of US-born tech entrepreneurs.

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From the Introduction and Summary:

The popular image of American tech entrepreneurs is that they come from elite universities: Some graduate and start companies in their garages; others drop out of college to start their business careers. The dot-com boom reinforced the image of technology CEOs being young and brash. But, even though Bill Gates and Steve Jobs founded two of the world’s most successful companies, they are not representative of technology and engineering company founders. Indeed, a larger proportion of tech founders are middle-aged, well-educated in business or technical disciplines, with degrees from a wide assortment of schools. Twice as many U.S.-born tech entrepreneurs start ventures in their fifties as do those in their early twenties, as this paper will show. 

Our earlier research on technology and engineering entrepreneurship revealed that skilled immigrants were a driving force in recent U.S. economic growth. From 1995 through 2005, skilled immigrant founders established 25.6 percent of all the startups nationwide, and 52.3 percent of those in Silicon Valley. This group tended to be highly educated in science-, technology-, and engineering-related disciplines. The majority came to the United States to study and decided to stay. These immigrant tech founders typically established a company thirteen years after coming to the United States and tended to gravitate to technology centers across the country.

What about U.S.-born tech entrepreneurs? Were they young college dropouts or well-educated? Were they graduates of elite schools or a diverse set of schools like the immigrant company founders? Where did they locate their companies? To answer these questions, we surveyed 652 U.S.-born chief executive officers and heads of product development in 502 engineering and technology companies established from 1995 through 2005. These companies, identified from an existing dataset of corporate records in Dun & Bradstreet’s Million Dollar Database, have more than $1 million in sales, twenty or more employees, and company branches with fifty or more employees. 

Our Findings

We observed that, like immigrant tech founders, U.S.-born engineering and technology company founders tend to be well-educated. There are, however, significant differences in the types of degrees these entrepreneurs obtain and the time they take to start a company after they graduate. They also tend to be more mobile and are much older than is commonly believed.

  • The average and median age of U.S.-born tech founders was thirty-nine when they started their companies. Twice as many were older than fifty as were younger than twenty-five.  
  • The vast majority (92 percent) of U.S.-born tech founders held bachelor’s degrees. Additionally, 31 percent held master’s degrees, and 10 percent had completed PhDs. Nearly half of all these degrees were in science-, technology-, engineering-, and mathematics- (STEM) related disciplines. One-third were in business, accounting, and finance.  
  • U.S.-born tech founders holding MBA degrees established companies more quickly (in thirteen years) than others. Those with PhDs typically waited twenty-one years to become tech entrepreneurs, and other master’s degree holders took less time to start companies than did those with bachelor’s degrees (14.7 years and 16.7 years respectively).  
  • U.S.-born tech founders holding computer science and information technology degrees founded companies sooner after graduating than engineering degree holders (14.3 years vs. 17.6 years). Applied science majors took the longest (twenty years) to create their startups.  
  • These tech founders graduate from a wide assortment of schools. The 628 U.S.-born tech founders providing information on their terminal (highest) degree, received their education from 287 unique universities. But degrees from top-ranked universities are over-represented in the ranks of U.S.-born tech founders. Ivy-League universities awarded 8 percent of the terminal degrees to U.S.-born tech founders in our sample. 
  • The top ten universities from which U.S.-born tech founders received their highest degrees in our sample are Harvard, MIT, Pennsylvania State University, Stanford, University of California- Berkeley, University of Missouri, University of Pennsylvania, University of Southern California, University of Texas, and the University of Virginia.  
  • U.S.-born tech founders with Ivy-League degrees tend to establish startups that produce higher revenue and employ more workers than the average. Startups founded by those with only high school education significantly underperform all others.  
  • Nearly half (45 percent) of the startups were established in the same state where U.S.-born tech founders received their education. Of the U.S.-born tech founders in our sample receiving degrees from California, 69 percent later created a startup in the state; Michigan, 58 percent; Texas, 53 percent; and Ohio, 52 percent. In contrast, Maryland retained only 15 percent; Indiana, 18 percent; and New York, 21 percent.

Business Dynamics Statistics: An Overview

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 Excerpt from the overview:

The Business Dynamics Statistics (BDS) includes measures of establishment openings and closings, firm startups, job creation and destruction by firm size, age, and industrial sector, and several other statistics on business dynamics. The U.S. economy is comprised of more than 6 million establishments with paid employees. The population of these businesses is constantly churning—some businesses grow, others decline, and yet others close. New businesses constantly replenish this pool. The BDS series provides annual statistics on gross job gains and losses for the entire economy, and by industrial sector and state. These data track changes in employment at the establishment level, and thus provide a picture of the dynamics underlying aggregate net employment growth.

The Business Dynamics Statistics is a product of the U.S. Census Bureau and was developed by the Center for Economic Studies. The BDS data are compiled from the Longitudinal Business Database (LBD) (Jarmin and Miranda, 2002). The LBD is a longitudinal database of business establishments and firms covering the years between 1976 and 2005 (as additional years of the LBD are available, the BDS will be updated).

The LBD is constructed by linking annual snapshot files from the Census Bureau’s Business Register (BR)1 to provide a longitudinal history for each establishment. The linkage process makes use of numeric establishment identifiers as well as probabilistic name and address matching. The linkage process allows the tracking of net employment changes at the establishment level, which, in turn, allows the estimation of jobs gained at opening and expanding establishments, and jobs lost at closing and contracting establishments.

The LBD originally was conceived and constructed to be a research dataset. It has been used in numerous studies published in leading scholarly journals. It also has seen increased use as a source of special tabulations. The growing demand for tabulations from the LBD is why the Census Bureau has developed the BDS.

Losing the World’s Best and Brightest: America’s New Immigrant Entrepreneurs, Part V

Large banks, such as Bank of America, and other U.S. firms are reducing plans to hire foreign national students due to concerns over political backlash amidst growing U.S. job losses. However, this study indicates that lessening the number of foreign national students in U.S. jobs may be detrimental to the economic health of the country by accelerating the return of talented immigrant students to their home countries.

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The study, conducted by Duke University professor and Harvard researcher Vivek Wadhwa surveyed 1,224 foreign nationals currently studying in U.S. institutions of higher learning or who had graduated by the end of the 2008 academic school year.

Immigrants historically have contributed to some of America’s most successful businesses and innovations. Between 1990 and 2007, the proportion of immigrants in the U.S. labor force increased from 9.3 percent to 15.7 percent, and a large and growing proportion of immigrants bring high levels of education and skill to the United States. Immigrants have contributed disproportionately in the most dynamic part of the U.S. economy—the high-tech sector—co-founding firms such as Google, Intel, eBay and Yahoo. In addition, immigrant inventors contributed to more than a quarter of U.S. global patent applications. Immigrant-founded U.S.-based companies employed 450,000 workers and generated $52 billion in revenue in 2006.

According to the study’s findings, very few foreign students would like to stay in the United States permanently—only 6 percent of Indian, 10 percent of Chinese, and 15 percent of Europeans. And fewer foreign students than the historical norm expressed interest in staying in the United States after they graduate. Only 58 percent of Indian, 54 percent of Chinese, and 40 percent of European students wish to stay for several years after graduation. Previous National Science Foundation research has shown 68 percent of foreigners who received science and engineering doctorates stayed for extended periods of time, including 73 percent of those who studied computer science. The five-year minimum stay rate was 92 percent for Chinese students and 85 percent for Indian students.

Among the study’s other findings:

  • A key impetus behind students’ intentions to depart is the fear that they will not be able to find a job in the United States upon graduation and their growing belief that the U.S. economy will lag global growth rates in the near future.
  • A significant majority of foreign students—85 percent of Indians and Chinese and 72 percent of European—are concerned about obtaining work visas; 74 percent of Indians, 76 percent of Chinese, and 58 percent of Europeans also are worried about obtaining jobs in their fields.
  • Chinese students, in particular, strongly feel the best employment prospects lie in their home country—52 percent said their home country has the best job opportunities versus 32 percent of Indian respondents and 26 percent of Europeans respondents. This contrasts starkly with the beliefs of most skilled immigrants in the 1980s and 1990s that the best opportunities were in the United States.
  • More respondents are more optimistic about their home country’s economic future than the United States’. Only 7 percent of Chinese students, 9 percent of European students and 25 percent of Indian students stated they believe the best days of the U.S. economy lie ahead. Conversely, 74 percent of Chinese students and 86 percent of Indian students feel the best days for their home country’s economy lie ahead.
  • A large percentage of respondents have entrepreneurial hopes; 64 percent of Indian, 66 percent of European and 68 percent of Chinese students indicated they want to start a business within the next decade. For Indian and Chinese students, the majority (53 percent and 55 percent respectively) hope to start businesses in their home countries. Only 35 percent of European students wish to open a business in their home country.

The students who were returning to their native countries echo a sentiment expressed by highly skilled Chinese and Indian immigrant entrepreneurs who were surveyed in the recent Kauffman Foundation study, “America’s Loss in the World’s Gain.” The strongest reason returnees cited for leaving the United States was that economic opportunities in their home country were better and they wanted to be with friends and families at home. Returnees also expressed strong entrepreneurial aspirations, and the majority believed that their best opportunities for entrepreneurship were at home. “Losing the World’s Best and Brightest” study is fifth in a series of reports Wadhwa has conducted on immigrant entrepreneurship for the Kauffman Foundation.

The researchers believe continued loss of these talented individuals and their ability to start companies and create patents will reduce U.S. competitiveness. In the near term, entrepreneurs starting new companies will likely provide a much greater boost to the U.S. economy than government bailouts to banks.

Business Dynamics Statistics Briefing: High Growth and Failure of Young Firms

Business startups that survive grow faster than more-established companies, according to Business Dynamics Statistics data funded by the Ewing Marion Kauffman Foundation. However, because entrepreneurial ventures also have higher mortality rates than older companies, they also have higher rates of job loss reflecting an “up or out” pattern.

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High Growth and Failure of Young Firms highlights a single dimension of the U.S. Census Bureau’s Business Dynamics Statistics (BDS). The BDS provides researchers with comprehensive data, broken out by firm age, that are necessary to understanding startup firms’ role in job creation.

The High Growth and Failure data show that very young firms (one year old) have a net employment growth rate of about 15 percent, if they survive, but about 20 percent of jobs at startups are lost due to business establishment closings in the first year. Older firms (age 29 and older), on the other hand, create jobs at a rate of about 4 percent, conditional on survival, and have a similar rate of job loss due to business establishment closings. Among surviving firms, average employment growth rates decline with the age of the firm.

America’s Loss is the World’s Gain: America’s New Immigrant Entrepreneurs, Part IV

This report examined the reasons behind the substantial number of highly skilled immigrants that had returned to their home countries, including persons from low-income countries like India and China who have historically tended to stay permanently in the United States. These returnees contributed to the tech boom in those countries and arguably spurred the growth of outsourcing of back-office processes as well as of research and development.

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From the introduction:

Immigrants have historically provided one of America’s greatest competitive advantages. They have come to the United States largely to work and have played a major role in the country’s recent growth. Between 1990 and 2007, the proportion of immigrants in the U.S. labor force increased from 9.3 percent to 15.7 percent. Approximately 45 percent of the growth of the workforce over this period consisted of immigrants. Moreover, a large and growing proportion of immigrants come with high levels of education and skill. They have contributed disproportionately in the most dynamic part of the U.S. economy—the high-tech sector. Immigrants have co-founded firms such as Google, Intel, eBay, and Yahoo. And immigrant inventors contributed to more than a quarter of U.S. global patent applications.

Since even before the 2008 financial and economic crisis, some observers have noted that a substantial number of highly skilled immigrants have started returning to their home countries, including persons from low-income countries like India and China who have historically tended to stay permanently in the United States. These returnees contributed to the tech boom in those countries and arguably spurred the growth of outsourcing of back-office processes as well as of research and development.

Who are these returnees? What motivated their decision to leave the United States? How have they fared since returning? This paper attempts to answer these questions through a survey of 1,203 Indian and Chinese immigrants who had worked or received their education in the United States and returned to their home country. In the absence of a census of all returnees, we could not conduct a random sample of the full population of persons who had been in the U.S. and returned. Instead, we drew our sample from persons on the LinkedIn website who were currently working for Indian and Chinese companies and had U.S. academic degrees or greater than one year of U.S. work experience. The survey was conducted over a period of six months in 2008. LinkedIn is an online network of more than 30 million experienced professionals and managers around the world and provides a valuable source of information on these types of workers. The survey obtained a 90 percent response rate. Though our findings may not generalize to all highly educated returnees, they are representative of the young professionals profiled on the site and potentially of similar persons more broadly.

This paper is the fourth in a series of studies examining the contribution and effect of skilled immigrants to the technology sector. Our previous research showed that immigrants were CEOs or lead technologists in one of every four tech and engineering companies started in the United States from 1995 to 2005 and in 52 percent of Silicon Valley startups. These immigrant-founded companies employed 450,000 workers and generated $52 billion in revenue in 2006. The founders tended to be highly educated in science-, technology-, mathematics-, and engineering- (STEM) related disciplines, with 75 percent holding a masters or PhD (Wadhwa, Rissing, Saxenian, et al., 2007). Using the World Intellectual Property Organization’s patent database, we found that the contribution of foreign nationals residing in the U.S. to global patents had increased more than threefold over an eight-year period (Wadhwa, Rissing, Chopra, at al., 2007).

The motivation for the current study is twofold.

First, our earlier work estimated that there were more than a million temporary workers and students in the skilled-worker immigration categories waiting for a yearly allocation of 120,000 permanent-resident visas. We speculated that these workers might get frustrated at the wait and return to their home countries, producing a flow of immigrant talent from the U.S. to other countries.

Second, we knew and read about immigrants returning to their home countries and wanted to assess the extent to which the anecdotal evidence was supported by survey data. Given the meltdown of Wall Street and the onslaught of a major recession in the United States, this study provides a baseline for assessing changes in the characteristics and reasons for immigrants returning home post the worsened state of the U.S. economy.

We find that, though restrictive immigration policies caused some returnees to depart the United States, the most significant factors in the decision to return home were career opportunities, family ties, and quality of life.

Entrepreneurial Impact: The Role of MIT

This study demonstrates the critical role universities play not only in fostering innovation and entrepreneurial growth, but in stimulating the much-needed recovery in regional and global economies.

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According to the study Entrepreneurial Impact: The Role of MIT, which analyzes the economic effect of MIT alumni-founded companies and its entrepreneurial ecosystem, if the active companies founded by MIT graduates formed an independent nation, their revenues would make that nation at least the seventeenth-largest economy in the world. Within the U.S., these companies currently generate hundreds of billions of dollars and hundreds of thousands of jobs to regional economies, particularly those in Massachusetts and California. Globally, a less conservative estimate of their annual world sales would equal $2 trillion, producing the equivalent of the eleventh-largest economy in the world.

“Entrepreneurial Impact” was conducted by Edward B. Roberts and Charles Eesley of the MIT Sloan School of Management, and is based on a 2003 survey of all living MIT alumni, with additional detailed analyses, including recent verification and updating to 2006 of revenue and employment figures.

The overall MIT entrepreneurial environment, consisting of multiple education, research and social network institutions, contributes to this outstanding and growing entrepreneurial output. Highlights of the findings include:

  • An estimated 6,900 MIT alumni companies with worldwide sales of approximately $164 billion are located in Massachusetts alone and represent 26 percent of the sales of all Massachusetts companies.
  • 4,100 MIT alumni-founded firms are based in California, and generate an estimated $134 billion in worldwide sales.
  • States currently benefiting most from jobs created by MIT alumni companies are Massachusetts (estimated at just under one million jobs worldwide); California (estimated at 526,000 jobs), New York (estimated at 231,000 jobs), Texas (estimated at 184,000) and Virginia (estimated at 136,000).

Another reason MIT is so important to the Massachusetts economy, the study reports, is that without MIT, most of these companies never would have been located in Massachusetts. Most of the MIT alumni companies in Massachusetts were founded by former students who came to the state to attend MIT, liked what they saw, and eventually started their companies there. Less than 10 percent of MIT undergraduates grew up in the state, but approximately 31 percent of all MIT alumni companies are located in Massachusetts

Not only do MIT alumni, drawn from all over the world, remain heavily in Massachusetts, but their entrepreneurial offshoots benefit the state and country significantly. More than 38 percent of the software, biotech and electronics companies founded by MIT graduates are located in Massachusetts, while less than 10 percent of arriving MIT freshmen are from the state. More than half of the companies started by MIT’s foreign-student alumni are located in the U.S., creating their primary employment and economic impacts here.

About the Massachusetts Institute of Technology
Launched in 1996, the MIT Entrepreneurship Center provides content, context, and contacts that enable entrepreneurs to design and launch successful new ventures based on innovative technologies. The center does this by giving MIT students, alumni, and colleagues access to an array of educational programs, networking opportunities, technologies, and resources, both at MIT and around the world.

Business Dynamics Statistics Briefing: Entrepreneurship Across States

The average share of employment accounted for by firms less than three years old varies widely by state, according to this analysis of U.S. Census Bureau data. The Business Dynamics Statistics (BDS), funded by the Ewing Marion Kauffman Foundation, found that young firms account for as much as 12 percent of employment in Southwestern and Western states. In states with a lower-ranking of the share of young firms, primarily those in the East and Midwest regions, only about 6 percent of employment is accounted for by young firms.

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Entrepreneurial rankings based upon the share of employment from young firms also tend to correspond closely—a simple correlation of 0.66—with a ranking of the employment growth experienced by the state. While this correlation is not a causal relationship, it is interesting since employment growth comes from the expansion of existing firms as well as the opening of new ones. This finding indicates that an important correlate of net employment growth is young firms.

The new analysis is reported in the second of a series of data briefings designed to highlight key features of the new Business Dynamics Statistics. The BDS provide researchers with comprehensive data, broken out by firm age, that are necessary to understanding the role of startup firms in job creation. The share of employment accounted for by young firms is just one of many possible indices that can be gleaned from the BDS.

A high fraction of employment accounted for by young firms is indicative of the overall dynamism of businesses in the state—the creation of jobs at new and expanding establishments and the destruction of jobs at contracting and closing establishments. Fast-growing states also have a high rate of dynamism.

Between 2000 and 2005, the BDS show that average annual employment gains at new and expanding establishments is 16.4 percent of total U.S. private sector employment (the gross job creation rate). For the same period, the BDS show that employment losses at contracting and closing establishments average to 15.1 percent of private sector employment (the gross job destruction rate). Thus, substantial churning of jobs and businesses underlies the U.S. private sector’s net employment growth rate in any given year (1.3% for 2000-2005).

Comparing these gross job flow measures with the state employment shares of young entrepreneurial businesses shows that high-entrepreneurial-activity states have both high gross job creation rates and high gross job destruction rates. Measured by job churning, these states have a high degree of business dynamism. At the state level, the correlation between the entrepreneurial activity statistic and gross job creation is 0.83, and the correlation between the entrepreneurial activity statistic and gross job destruction is 0.64.

The next BDS report will be released in March 2009. Further information about the BDS can be found at https://www.census.gov/programs-surveys/bds.html.

The State of Middle School and High School Science Labs in the Kansas City Region

This report shares the findings of an audit conducted across thirty school districts in which the state of science labs was assessed. The audit was conducted by SuccessLink, with funding of the project from the Ewing Marion Kauffman Foundation. This study was conducted as part of the Kauffman Foundation’s multi-year agenda to improve student achievement in mathematics, science, and technology subjects in the Greater Kansas City region.

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Executive Summary

This 2007 report shares the findings of an audit conducted across thirty school districts in which the state of science labs was assessed. The audit was conducted by SuccessLink, with funding of the project from the Ewing Marion Kauffman Foundation. This study was conducted as part of the Kauffman Foundation’s multi-year agenda to improve student achievement in mathematics, science, and technology subjects in the Greater Kansas City region.

Auditors visited 170 school buildings in thirty school districts over a five-month period during the 2006-2007 school year. They recorded observations on safety issues, science lab facilities, and equipment and materials. Auditors also conducted teacher interviews and provided online surveys to teachers and administrators in order to assess aspects of instruction, learning, and district policies. This data was then compared to standards set by the National Science Teachers Association (NSTA). The results indicate that science labs in the Kansas City region do not meet national standards and that much work needs to be done to bring the school science labs up to the national standards.

Findings

The audit identified five areas of concern and this report summarizes each area and makes recommendations for improvement. The five areas are Safety, Facilities, Equipment and Materials, Instruction and Learning, and District Policies.

Conclusion 1:

The majority of science labs in the Kansas City region do not meet NSTA safety standards.

In order to provide a safe learning environment for students, every science lab must contain basic safety equipment. During this study, auditors found missing safety equipment in more than half of the science labs.

Conclusion 2:

The majority of science labs are too small, lack sufficient storage space, and are not set up in a way that effectively promotes student learning.

More than half of labs in the Kansas City region do not have enough space to facilitate effective student learning. Labs are not currently arranged in a way that meets NSTA recommendations (see Appendix B). Short of renovations, improvements can be made by rearranging the design of labs and reducing the number of students in each science lab class. Auditors also determined that science lab storage rooms are frequently cluttered, disorganized, and dusty.

Conclusion 3:

Science lab equipment and materials are not used effectively or safely in many science lab classrooms.

Auditors frequently discovered old, broken, and unused equipment in many of the observed science labs. In many cases, brand new equipment had never been opened and outdated equipment was still in use.

Conclusion 4:

Many teachers lead science lab classes that are larger than the recommended class size. Compounding this challenge, many teachers are not comfortable using lab equipment or knowledgeable about how to integrate lab activities with the science curriculum.

The recommended science lab class size is twenty-four, yet a lab size of twenty-six was the average for labs in this study.The NSTA recommends approximately ninety minutes for science lab learning per week. The majority of students in this study received less than one hour of science lab instruction each week.

This audit found that collaboration is common between science teachers, and district professional development rarely addresses science labs.The science curriculum studied during this audit shows that science labs are rarely incorporated into the overall science curriculum. However, most teachers report that they do embed science labs in their class plans even though they are not required to do so by the district.

Conclusion 5:

School districts do not provide guidelines to science teachers on how to best use the science lab.

District policies are not in place that guide building administrators and science teachers in the areas of safety, facilities, equipment, and instruction. Moreover, survey data showed a wide discrepancy between how teachers and administrators perceive district policies. Most teachers assume that there is a written vision regarding the role of science labs. In most cases, district administrators reported that this is not the case. Few teachers believed that there were district expectations about lab use, whereas most administrators claimed that there were.

Summary

This report presents significant findings and recommends critical improvements to the quality and safety of science laboratories. In addition to implementing these recommendations, school districts must make the science laboratory experience of students a priority so that science labs are used to enhance student learning. As this audit demonstrates, schools in the Kansas City region can improve the quality of student science lab experiences while ensuring student safety. In doing so, students will better understand scientific concepts through enriching laboratory activities.

Business Dynamics Statistics Briefing: Jobs Created from Business Startups in the United States

Newly released data from the U.S. Census Bureau—the Business Dynamics Statistics—allow unprecedented tracking of business dynamics for U.S. firms and establishments. This is one of several BDS briefings to be released highlighting key features of this new data.

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One novel feature of the BDS is that business startups (new firms) can be tracked on a comprehensive basis for U.S. private, non-agricultural businesses. The fraction of employment accounted for by U.S. private-sector business startups over the 1980-2005 period is about 3 percent per year. This measure is interpretable as the employment-weighted business startup rate for the United States. While this is a small fraction of overall employment, all of this employment from startups reflects new jobs. As such, 3 percent is large compared to the average annual net employment growth of the U.S. private sector for the same period (about 1.8 percent). This pattern implies that, excluding the jobs from new firms, the U.S. net employment growth rate is negative on average. This simple comparison highlights the importance of business startups to job creation in the United States.

For micro firms (firms with one to four employees), the percent of jobs in any given year accounted for by business startups is very large—about 20 percent on average. For substantially larger firms (firms with 250 to 499 employees), the percent of jobs in any given year accounted for by business startups is considerably smaller—about 1.3 percent of employment in this firm-size class. This is still substantial relative to net employment growth for the size class.

Business startups tend to be mildly procyclical. That is, in most business cycle downturns, business startups decline slightly (2001 is an exception). However, it is striking that business startups remain robust even in the most severe recession over the sample period (in the early 1980s). The procyclicality is more apparent for micro-firm business startups. The robustness of business startups to cyclical contractions is of clear interest given the current downturn. It remains to be seen whether the current downturn may have a more adverse impact on business startups than in past recessions.

The overall business startup rate does not exhibit much of a trend, but data shows a declining trend in the business startup rate for micro firms. While understanding the latter requires detailed analysis (for which the BDS is well suited), this may reflect compositional changes in sectors such as retail trade, where there is ample evidence of substantial shifts away from small, single-establishment firms to large, national firms.

This briefing highlights only one dimension of the Census Bureau’s new Business Dynamics Statistics. The Business Dynamics Statistics includes measures of business startups, establishment openings and closings, and establishment expansions and contractions in terms of both the number of establishments and the number of jobs. The BDS data provide these new statistics on an annual basis for 1977-2005, with classifications for the total U.S. private sector by broad industrial sector, firm size, firm age, and state. Further information about the BDS can be found at https://www.census.gov/programs-surveys/bds.html.

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