State of entrepreneurship: Numbers reveal what’s missing

Raymond Keating
Raymond Keating

Small Business Week constitutes the one point on the calendar to celebrate and appreciate entrepreneurs, small businesses and their employees and all they accomplish in terms of innovation, job creation and economic growth.

It’s also an appropriate time to take an updated look at the state of entrepreneurship and small businesses in the U.S. economy. Unfortunately, the level of entrepreneurship has faltered, especially during the Great Recession and its subsequent poor recovery. The very latest data shows we still await a real reinvigoration of America’s entrepreneurial spirit.

In August, the Small Business & Entrepreneurship Council analyzed an assortment of data and concluded the U.S. experienced a dramatic decline in entrepreneurship and the number of businesses over the past near decade. The analysis examined what would have happened had pre-recession percentage highs in self-employment and businesses as a share of the relevant populations had been registered in 2015, then determined what was missing:

722,000 missing incorporated self-employed.

2.2 million missing unincorporated self-employed.

735,000 missing employer firms.

106,000 missing annual startups.

867,000 missing businesses.

If the previous growth in the business share of the relevant population had continued after 2008, there would have been 4.8 million more businesses in 2015 than there actually were.

Some of these numbers subsequently have been updated:

In terms of the incorporated self-employed as reported in August as a share of the civilian noninstitutional population, the 2008 high was 2.474 percent, with 2015 registering 2.186 percent. In 2016, that share increased to 2.226. So, we’ve experienced some growth or recovery for the past five years. However, the 2016 level not only remained below the 2008 high, but below levels registered each year from 2003 through 2009. In March, the level stood at 2.256. So, if we had been at the 2008 level in March, there would have been 554,000 more incorporated self-employed than there actually were.

Since the mid-1990s, there’s been a general decline in the number of unincorporated self-employed as well as a decline as a share of the civilian noninstitutional population. After the 2001 recession and poor initial recovery, there was a bit of a recovery in the number of unincorporated self-employed, with the share registering 4.63 percent in 2006. However, the decline resumed and dramatically accelerated. In fact, the self-employed share of the population dropped below 4 percent in 2011 for the first time ever. The decline was steady from 2006 to 2014, with stagnation following in 2015 and 2016, when the rate came in at 3.79 percent. As of March, the rate had fallen to 3.76 percent. If we had been at the 2006 level in March of this year, there would have been 2.22 million more unincorporated self-employed than there actually were.

Consider the number of employer firms came in at 6.05 million in 2007, registering as 2.61 percent of the relevant population. The number fell to 5.68 million in 2011, then climbed back to 5.78 million in 2013. But as a share of the population, it has fallen steadily, hitting 2.35 percent in 2013. By the way, looking back at data to 1988, this compared to a high of 2.73 percent in 1996. In 2014, the number of employer firms again moved up to 5.83 million, but as a share of the civilian noninstitutional population, the share stagnated at 2.35 percent. If the 2014 level had managed to match the 2007 level, then there would have been 646,000 more employer firms in 2014 than there were.

Based only on self-employed and employer data, it’s a fair estimate the U.S. is missing 3.42 million businesses. That marks an improvement from 3.7 million missing businesses cited in the August report based on the same combination of the most often cited self-employed and employer firm data. However, it continues to show a dearth in entrepreneurship.

Looking ahead, entrepreneurship needs an improved policy foundation.

In a November report, the Small Business & Entrepreneurship Council noted that needed policy changes center on tax relief and reform, regulatory relief and reform, free trade, reining in government spending and sound monetary policy — and we offered examples to follow from recent presidential administrations.

The need for this agenda hasn’t changed, with hope coming from initial moves advanced under our new presidential administration and Congress on the tax and regulatory fronts. Our elected officials need to continue to move forward to get U.S. entrepreneurship flourishing again.