PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

The State of Entrepreneurship and Small Business

By at 3 May, 2017, 8:03 am

 

by Raymond J. Keating-

Small Business Week 2017 was held April 30-May 6.  It is one focal point on the yearly calendar to celebrate and appreciate entrepreneurs, small businesses and their employees, and all that they accomplish in terms of innovation, job creation and economic growth.

It’s also an appropriate time to take an updated look at the basic state of entrepreneurship and small business 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 that we still await a real reinvigoration of America’s entrepreneurial spirit.

In an August 2016 analysis titled Gap Analysis #3: Millions of Missing Businesses, SBE Council analyzed an assortment of data, and concluded that the U.S. experienced “a dramatic decline in entrepreneurship and in the number of businesses over the past near-decade.”

Specifically, the following was reported in this analysis:

722,000 Missing Incorporated Self-EmployedIf the pre-recession percentage high (2008), that is, as a share of the relevant population, had been registered in 2015, there would have been approximately 722,000 more incorporated self-employed than there were.

2.2 Million Missing Unincorporated Self-EmployedIf the recent pre-recession percentage high (2004), that is, as a share of the relevant population, had been registered in 2015, there would have been approximately 2.2 million more unincorporated self-employed than there were.

735,000 Missing Employer FirmsIf the recent pre-recession percentage high (2005), that is, as a share of the relevant population, had been registered in 2013, there would have been approximately 735,000 more employer firms than there were.

106,000 Missing Annual StartupsIf the recent pre-recession percentage high (2006), that is, as a share of the relevant population, had been registered in 2015, there would have been approximately 106,000 more startups (business establishments less than one year old) than there were in that year.

 867,000 Missing Businesses According to IRS Tax ReturnsIf the recent pre-recession percentage high (2008), that is, as a share of the relevant population, had been registered in 2015, there would have been approximately 867,000 more businesses than there were.

 4.8 Million Missing BusinessesHowever, if the previous growth in the business share of the relevant population had continued after 2008 (based on the IRS data), there would have been 4.8 million more businesses in 2015 than there actually were.

Some of these numbers have subsequently been updated – incorporated self-employed, unincorporated self-employed, and the number of employer firms. So, let’s get an update.

The Latest Data on Entrepreneurship

Incorporated Self-Employed. First, in terms of 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 the levels registered each year from 2003 through 2009. In March of this year, 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.

Unincorporated Self-Employed. Since the mid-1990s, there has 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, 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, and 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 2017, 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.

Employer Firms. As noted in the August report: “Consider that the number of employer firms came in at 6.05 million in 2007, registering as 2.61 percent of the relevant population. The number declined to 5.68 million in 2011, climbing 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.

Total Missing U.S. Businesses

In the end, based exclusively on these self-employed and employer data, it’s a fair estimate that the U.S. is missing some 3.42 million businesses.

That marks an improvement from 3.7 million missing businesses cited in our 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 our November report titled Gap Analysis #8: Policy Solutions for Closing the Gaps in Our Economy, SBE Council noted that policy changes needed 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 has not 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.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

 

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