March 12th, 2017
(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: firstname.lastname@example.org
Startup rates, or the share of all companies formed within the past year, had exceeded closure rates every year since at least the 1970s — even during recessions. That all came to a halt in 2008 with the economic downturn. While it’s normal for growth to diminish somewhat during economic recoveries, it has been slower than usual: There were still 182,000 fewer businesses in 2014 than in 2007, according to the report.
Falling startup rates aren’t just confined to a few industries. All major sectors of the economy experienced gradual declines.
The slowdown in the formation of new businesses has led to what the report calls a “golden age of incumbency,” with a larger share of Americans working for well-established companies than ever before.
Regions with startup rates exceeding the national rate in 2014 were mostly concentrated in the West, the South and California. The thriving Austin, Texas and Provo-Orem, Utah, metro areas posted the highest rates of new businesses relative to closings.
Meanwhile, net business creation has contracted and is occurring in far fewer places now. In fact, the metro areas of Dallas, Houston, Los Angeles, Miami and New York combined generated more net gains than the entire rest of the country between 2010 and 2014.
In addition, growth has become more concentrated across larger regions. Consider the New York City area: It added firms in 2014, yet its neighbors — Bridgeport, Conn., and Trenton, N.J., — registered net declines. Similarly, the Southeastern metro areas of Atlanta, Charleston, S.C., and Charlotte, N.C., experienced growth, while nearly all their neighbors lost more firms than were created.
But even regions with the strongest economies aren’t performing any better than they used to. They’re just more resilient than other places, said Lettieri.
A Brookings Institution study tracking high-skill segments of the economy responsible for significant exports and productivity growth reported a similar pattern: Most of the growth for these coveted jobs was limited to a smaller number of regions than before.
Thriving regions typically benefit from a range of factors. The EIG report notes that population growth explains about half the variation in startup rates, as more newcomers to a region yield new businesses. Places with bigger immigrant populations also benefit as this demographic plays a disproportionately large role in entrepreneurship. And diverse economies tend to propel startup growth, while one-company towns struggle to keep up.
“The cities we see that are the most dynamic tend to have a mix of things that support each other,” said Steve Glickman, EIG’s executive director.