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U.S. Startup Rate At Record Low

Reuters  |  Posted: 05/ 3/2012 2:22 pm

Startup Rate

(Reuters) - The pace at which new businesses are created in the United States dropped to a record low in 2010, a troubling development for an economy that is struggling to achieve higher growth rates necessary to reduce high unemployment.

The latest Census Bureau data, published on Wednesday, showed the startup rate fell to an all-time low of 7.87 percent from 8.10 in 2009.

The figures are based on a survey conducted by the Census Bureau's Center for Economic Studies and the Ewing Marion Kauffman Foundation, a nonprofit organization that focuses on entrepreneurship.

The startup rate peaked at 13.02 percent in 1987. Startups are critical contributors to job creation, and the declining trend could help explain the economy's sluggish recovery from the 2007-09 recession.

"There are a lot of questions as to why the economy has been slow coming out of the recession, and it is possible that some of that could be explained by the decline in the trend of startups and new firms in the U.S. economy," Javier Mirada, principal economist at the Center for Economic Studies, told Reuters.

According to the survey, about 394,000 new businesses were formed in 2010, creating 2.3 million jobs. In contrast, total private-sector employment fell by 1.8 million between March 2009 and March 2010.

Although the economy has now been growing for 11 straight quarters, the pace has been insufficient to bring down the unemployment rate, which remains above 8 percent.

"Without the new jobs created by business startups, the Great Recession would have been even deeper, with many more jobs lost," said Robert Litan, vice president of research and policy at the Kauffman Foundation.

"If we are to achieve and sustain a hearty recovery, policymakers, educators and organizations that help entrepreneurs commercialize their technologies must be willing to address every obstacle that stands in the way of new business formation," Litan said.

Only 35 percent of all companies are "young" -- in business five or fewer years -- down from nearly 50 percent in the early 1980s.

At the same time, entrepreneurial companies accounted for only 12 percent of U.S. employment in 2010, compared with 20 percent in the 1980s.

The entrepreneurs' share of job creation also has fallen, to about 30 percent in recent years from more than 40 percent in the 1980s.

(Reporting By Lucia Mutikani; Editing by Lisa Von Ahn)

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Filed by Nate C. Hindman  |