Decline in Start-ups Parallels Decline in Unemployment

Back in December 2012, in my Blog entitled “Who Ya Gonna Belive” I spent some time looking behind the official unemployment figures.  That analysis called into question whether the unemployment rate had really declined or if the indicated decline was really a function of the measuring methodology.  Given this ambiguity I like to search other places in an attempt to get a three-point fix on our unemployment situation.

A recent study by the Kauffman Foundation noted a drop in 2012 in the rate of start-ups, representing the second consecutive year in which a decrease occurred.  The report disclosed that 0.32 percent of adult Americans started businesses in 2011 but only 0.30 percent did so in 2012. That converts to 514,000 people per month starting new businesses in 2012 as compared to the 543,000 per month in 2011, a decrease of 29,000 per month.

Slicing the data by gender reveals that women maintained their 2011 start-up rate of 0.23 percent in year 2012.  Men on the other hand showed a decrease to 0.38 percent in 2012 from 0.42 in 2011.

The author of the report attributes this current downward trend in entrepreneurial activity by males to men’s increased ability to secure employment during 2012 as opposed to 2011.  Robert Fairlie, the author, and also the director of graduate economics programs at the University of California, Santa Cruz stated:  “The fact that the rate for men starting businesses dropped so significantly in 2012, when unemployment also went down, suggests that men were getting jobs so they didn’t feel the pressure to start businesses.”

Dane Strangle, the Kauffman Foundation’s director of research supported the author’s sentiment stating: During the Great Recession when the labor market was at its weakest, business creation rates rose to record highs. The 2012 rates are a return to longer-term levels.”

For more details including additional demographic statistics see the study or the article by Kent Hoover which formed the basis for this Blog.

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