Kauffman Index on Startup Activity Indicates Reversal of 5 Year Trend.
According to the Kauffman Index that measures US startup activity things are looking better. Following a downward slump that cratered in 2010, startup activity jumped in 2014 representing the largest year over year increase in the last two decades. This is good news for the economy and of course politicians who will scramble to take credit for the improving environment for small companies.
Kaufmann explains that typically their Startup Activity Index has risen or fallen hand in had with the business cycle. While the jump in business activity is encouraging, Kauffman tempers the news that it may be too soon to celebrate as the return remains “tepid and well below historical trends”.
According to their data, in the 2015 Index, 310 out of 100,000 adults, or 0.31 percent, started new businesses each month, on average. In the 2014 Index, the average was 0.28 percent of the adult population.
“This rebound in entrepreneurial activity lines up with the strength we’ve seen in other economic indicators, and should generate hope for further economic expansion,” said Dane Stangler, vice president of Research and Policy at the Kauffman Foundation. “But, it’s important to view this short-term uptick in context of the bigger picture – we are still in a long-term decline of activity, which affects job creation, innovation and economic growth.”
The gender gap in entrepreneurship persists: 63.3% were men and the balance (36.8%) were women. The proportion that were female stubbornly remains close to the 2 decade low of 36.3% that was measured in 2008. The age brackets for entrepreneurs grew for all ages with the exception of those aged 45 – 54.
All ethnic groups saw increases. Latinos were highlighted as entrepeneurs in this category jumped from 10% in 1997 to 22.1% in 2014. Asian entrepreneurs rose from 3.4% to 6.8%. African American’s increased from 8.4% to 9.2%. As the immigrant population has increased so has the probability of new immigrant entrepreneurs. According to Kauffman 28.5% of all new entrepreneurs were immigrants in contrast to 13.3% in 1997.
Opportunity entrepreneurs, those who were not unemployed and not looking for a job before they started their new ventures was substantially higher than in the 2010 Index, when the number of opportunity entrepreneurs was at the lowest rate since the Kauffman Foundation began collecting this data in 1996.
“Entrepreneurs starting new businesses because they saw market opportunities is back to historical norms,” said Arnobio Morelix, research analyst at the Kauffman Foundation, and one of the study’s authors. “When broad-based entrepreneurial opportunity improves at this pace, it’s an indication that the labor market is slowly recovering.”
Startup density, or the number of new employer businesses by total population, increased from 128.8, or 128.8 for every 100,000 people, to 130.6 in the Startup Activity calculations from 2014 to 2015. Though startup density is climbing, it remains well below typical historical rates.
“Leaders from across the United States have rallied to foster entrepreneurship. Still, the challenge of consistently measuring and benchmarking startup activity has been largely unanswered,” said Rob Fairlie, professor and chair of economics at the University of California, Santa Cruz, and one of the study’s authors. “The Kauffman Index helps fill this data gap, and provides policymakers and entrepreneurs a tool for better decision-making.”
Kauffman understands the importance of entrepreneurship, risk taking and fostering an innovation culture;
“What a society measures is an indication of what that society values. Entrepreneurship in all its forms will continue to be essential to rising standards of living and expanding economic opportunity. Innovations and improvements in entrepreneurship data will allow us to do a better job in pursuit of those objectives.”
The research is embedded below.
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