Economics, Pethokoukis, U.S. Economy

More Americans will have no choice but to be entrepreneurs and invent their own jobs

Kauffman Foundation

Kauffman Foundation

Entrepreneurial activity is down, but more of those starting businesses lately are doing so because they spy a market opportunity than because they just lost their job. According to the annual Kauffman Index of Entrepreneurial Activity, the startup rate declined slightly from 0.32% of American adults per month starting businesses in 2011 and 0.30% in 2012 to 0.28% in 2013.

But 78.2% were “opportunity entrepreneurs” last year vs. 72.8% in 2009. The Wall Street Journal’s Rhonda Colvin and Sarah Needleman, keying off the new Kauffman study, see fewer “necessity entrepreneurs” as a “silver lining” in the steady decline in US business formation. Some further explanation:

Josh Lerner, an economist at Harvard Business School, says that necessity entrepreneurs “were the M.B.A. who got laid off and created a one-man consulting business and the guy who got laid off from the steel mill and started doing car repair in his backyard.”

It’s the “opportunity entrepreneurs”—those who start businesses because they see an opportunity in the market rather than because they have no other employment options—who tend to be better positioned for success, according to Aaron Chatterji, an associate professor of business administration at Duke University’s Fuqua School of Business. “They’ve made the choice—the calculation—that this is the time to do it,” he says, adding that such people are also more likely to create jobs.

We need more opportunity entrepreneurs and should eliminate government-erected barriers to entry. We need more “permissionless innovation” and fewer bureaucratic hassles. But a rising number of US workers may become de facto necessity entrepreneurs as automation eliminates routine positions and temp jobs rise as a share of the economy. We will need to invent our own jobs. How can government help? In their excellent book, “The Second Machine Age,” MIT’s Erik Brynjolfsson and Andrew McAfee offer policy recommendations such as a universal basic income or negative income tax, taxing consumption rather than human labor, teaching entrepreneurship throughout an improved education system, and keeping the entrepreneurial “peer economy,” such as Airbnb, deregulated. The point is to boost firm entry (more startups) and exit (no cronyist bailouts or subsidies), while bolstering the safety net for workers.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

5 thoughts on “More Americans will have no choice but to be entrepreneurs and invent their own jobs

  1. Are you serious?

    You actually think that a survey of 74% “entrepreneur opportunists” in 2009 is statistically significant compared to 78% in 2013. Good grief!

  2. Entrepreneurial activity has in fact declined according to the Kauffman. But Mr. P neglects to say that it is down from an all-time high in 2009-10 when necessity was the mother of invention. Doesn’t fit the narrative of enterprise sapping Obamanomics, you see.

    • But Mr. P neglects to say that it is down from an all-time high in 2009-10 when necessity was the mother of invention.

      LOL. Excellent bench mark, Turd Man.

      I can run faster than when I had a broken leg. Guess that means I’m ready for the Boston Marathon.

      • Kinda early to write off the classes as 2009 and 2010 as one-legged marathoners, no?

        The wingnut narrative is that makers only start businesses when taxes and regulations are minimal, while takers are just look for ways to get on the dole. So, yes, that ’09 and ’10 had more starts than at any point in the Kauffman series’ 18-year history does, in fact, demonstrate that the wingnut narrative is both obnoxiously arrogant and wrong.

  3. With each passing week, I’m becoming more and more convinced that the “way out” of our current economic troubles involves creating new ways for people otherwise left behind by the emerging digital economy to connect to it.

    In some ways, for many people, the formulations:
    1) if your skills no longer needed in vast quantities then get new skills so you can contribute in new ways to earn a new paycheck
    and
    2) if you lost your job, make your own new job

    are too simplistic and unrealistic.
    I believe we’re at a time (again) in the evolution of our economy and society when the challenge at the feet for those who can create new out of nothing is to focus on the legions who can’t or won’t ever accomplish #1 or #2. We must create new ways for people to connect to the modern economy.

    @DanFarfan

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