Entrepreneurship and the U.S. Economy

Entrepreneurship plays a vital role in the growth of the U.S. economy. As the primary source for information on the nation’s labor market, the U.S. Bureau of Labor Statistics (BLS) collects data on new businesses and job creation. The following highlights from data series produced by BLS Business Employment Dynamics (BED) program provide some insights on the contribution of new and small businesses to the number of businesses and jobs in the economy.

Business establishment age

The BED data series on age of establishment tracks cohorts of new business establishments “born” in the same year and reports on their associated employment. The number of new business establishments (establishments that are less than 1 year old in any given year) tends to rise and fall with the business cycle of the overall economy. As shown in chart 1, the number of new establishments for the year ending in March 2010 was lower than any other year since the series began. (Data by age are not available prior to 1994.)

Chart 1. Number of establishments less than 1 year old, March 1994–March 2010
[Chart data]

The number of jobs created by establishments less than 1 year old has decreased from 4.1 million in 1994, when this series began, to 2.5 million in 2010. (See chart 2.) This trend combined with that of fewer new establishments overall indicates that the number of new jobs in each new establishment is declining.

Chart 2. Jobs created by establishments less 1 one year old, March 1994–March 2010
[Chart data]

Establishment survival

New business establishments make an important contribution to the economy; however, it is inevitable that some of these establishments will eventually fail. The BED age series tracks cohorts of new business establishments to measure how many survive from year to year. (For a full listing, see www.bls.gov/bdm/us_age_naics_00_table7.txt) Survival rates follow a similar trajectory, regardless of the birth year, as seen in chart 3, which compares birth cohorts from different years.

Chart 3. Survival rates of establishments, by year started and number of years since starting, 1994–2010
[Chart data]

Survival rates for establishments vary by industry. The health care and social assistance industry, for example, consistently ranks among the industries with the highest survival rates over time, while construction ranks among the lowest. (See chart 4.)

Chart 4. Survival rate by selected industries, 2000 birth cohort, 2000–2010
[Chart data]

Establishment births and deaths

In addition to annual birth cohorts identified by age, BLS also publishes BED data on business births and deaths on a quarterly basis. The birth and death data series is the most timely source of data available on new private sector business establishments in the United States.

As shown in chart 5, the period from 1993 to 2006 was marked by an increase in the number of births and deaths, indicating a higher amount of business “churn”—that is, new business establishments entered and old establishments exited the economy in greater numbers. Since the most recent recession began in December 2007, births have experienced the steepest decline in the history of the series. New establishments are not being formed at the same levels seen before the economic downturn began, and the number is much lower than it was during the 2001 recession.

Chart 5. Quarterly establishment births and deaths, 1993–2010
[Chart data]

The number of jobs created from establishment births peaked in the late 1990s and has experienced an overall decline since then. The decrease in birth-related employment during the latest recession is the largest in the history of the series, followed closely by the period of “jobless recovery” after the 2001 recession.

Chart 6. Employment gains and losses resulting from private sector establishment births and deaths, seasonally adjusted, U.S. total private, June 1993–March 2010
[Chart data]

Firm Size

Small businesses are typically the entry point for entrepreneurs as they develop ideas and build a customer base before deciding whether to expand. Of the nine size classes in the BED series, the six smallest (249 employees or smaller) have seen their shares of private sector employment decrease since the early 1990s, while the three largest size classes (250 or more employees) have seen their shares of total employment increase. (See chart 7.)

Chart 7. Percent distribution of private sector employment by size of firm, 1993–2010
[Chart data]

More information and data can be found on the BED page of the BLS website at www.bls.gov/bdm/.

Also, see the following: