1. START-UPS These studies find that as the economy has become dominated by fewer and larger companies, there’s been a sharp decline in the formation of new businesses that fuel economic growth.
“Declining Business Dynamism in the United States: A Look at States and Metros.” Ian Hathaway and Robert E. Litan, The Brookings Institution, May 2014.
Though start-ups occupy a large place in the U.S.’s present tech-fueled imagination, new business formation has in fact been in steady decline. This study from researchers at the Brookings Institution and Ennsyte Economics quantifies this decline, finding that during the three decades between 1978 and 2011, the share of firms less than one year old fell by nearly half. This slump has accelerated in recent years in what the authors term a “precipitous drop” since 2006, which they call “noteworthy and disturbing.” In fact, the authors find, “the number of business deaths now exceed business births for the first time in the 30-plus year history of our data.” The study determines that this trend isn’t geographically isolated, and that business dynamism has declined in all 50 states and in all but a handful of more than 360 U.S. metropolitan areas.
“The Importance of Young Firms for Economic Growth.” Jason Wiens and Chris Jackson, Entrepreneurship Policy Digest, Kauffman Foundation, Sept. 14, 2015.
This brief, which is a roundup of recent research, underlines the reasons why the decline in new business formation is so troubling. As the authors explain, young firms are the major contributor of new jobs. “New businesses account for nearly all net new job creation and almost 20 percent of gross job creation,” they write, adding, “companies less than one year old have created an average of 1.5 million jobs per year over the past three decades.” They link to several recent papers, such as two 2013 studies titled “How Firms Respond to Business Cycles: The Role of Firm Age and Firm Size,” and “Who Creates Jobs? Small Versus Large Versus Young,” that delve deeper into the economic and statistical analysis behind these findings.