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Entrepreneurs start businesses that create lots of jobs and inject innovation into the US economy. Start-up America is our difference maker. Our edge.
But something seems to be going wrong. In another great note, “Where have all of the entrepreneurs gone?,” JPMorgan economist Mike Feroli highlights some disturbing trends with our entrepreneurial culture.
1. Net job growth is driven by new businesses. Existing establishments tend to shed jobs. But according to the Labor Department’s new Business Employment Dynamics report, “the trend has clearly shifted. In 12Q3 opening establishments added 1.27 million jobs. In the last cycle this figure averaged closer to 1.5 million jobs per quarter, and in the 1990s the figure averaged 1.75 million per quarter.” Down, down, down.
2. Feroli notes that employment “births” — a subset of openings not including reopenings of seasonal businesses — are also weak. Employment births in 12Q3 as a percent of all employment held at 0.7% in 12Q3 for the fourteenth consecutive quarter. In contrast, this figure stood between 1.1% and 1.3% during the 1990s.
And some charts highlight the problem:
The economist concedes “it is difficult to diagnose the cause of the decline in establishment births” — especially since entrepreneurial activity appeared to be trending lower even before the crisis. I have previously blogged
about a Hudson Institute report with similar findings.
Hudson’s possible suspects for the slowdown: a) higher business taxes, b) Obamacare, c) an IRS crackdown on US employers that hire U.S. workers as independent contractors rather than employees, and d) a steady barrier erected to entrepreneurs at the local policy level.
But whatever the cause of the entrepreneurial decline, two possible impacts: 1) A less productive and innovative economy, and 2) higher profits for big business thanks to fewer upstart competitors on the horizon.