Kauffman Study Finds New Entrepreneurs Are Not Hiring

The U.S. economic crisis spurred more Americans to become entrepreneurs than at any point in the last 15 years, according to the 2010 edition of the Kauffman Foundation's Index of Entrepreneurial Activity. The study found that 340 out of every 100,000 Americans started a new business each month in 2010, approximately the same rate as 2009, but an increase over the pre-recession period. Many of these new entrepreneurs, however, are not creating new jobs through their startups. High unemployment rates may have driven more people to start new businesses, but many are creating lower-cost startups without employees at launch.

The Kauffman Index tracks startup rates by identifying all individuals between 20 and 64 years old who do not own businesses in the first month of the survey, using Census and Bureau of Labor Statistics data. Each month, the study checks if an individual has since become the owner of a business where they work 15 hours or more a week. Kauffman also tracks historical trends in startup rates since 1996, with additional data on race, gender, age and geography.

Kauffman's site now provides several interactive visualizations tracking entrepreneurship rates since 1996, broken down by demographic group and by state. Access the data at: http://www.kauffman.org/research-and-policy/kiea-interactive.aspx.

Over most of the past 15 years, the U.S. monthly startup rate has fluctuated between 0.27 percent (270 business starts per 100,000 individuals) and 0.31 percent. In 2008, however, the rate began to rise as the economy worsened to its current level of 0.34 percent. The "employer establishment birth rate," a quarterly measure of new business starts with employees, began its decline a year earlier in 2007. In each of the first two quarters of 2010, 0.1 percent of U.S. individuals between 20 and 64 years started businesses that created new jobs. This is down from a rate of 0.13 percent in 2007.

The study posits that these opposing trends are due to new businesses launched by individuals who have lost their jobs and have decided to become entrepreneurs. Because many of these individuals lack sufficient startup capital to take on employees, many of their businesses are sole proprietorships or other kinds of non-employing firms. The authors note that this trend, if it continues, could have significant impacts for national employment and economic growth.

The highest 2010 startup rates were found in the Western U.S., with 0.41 percent, and the South, with 0.36 percent. Nevada had the country's highest level of entrepreneurial activity, with 510 new businesses per 100,000 individuals, followed by Georgia, California, Louisiana and Colorado. Georgia had the largest increase in activity over the past decade, rising from 0.27 percent to 0.51 percent. Nevada, Tennessee and Massachusetts also experienced large increases in entrepreneurial activity. Among the 15 largest U.S. metropolitan areas, Los Angeles, Houston, Atlanta and San Francisco had the highest levels of entrepreneurial activity in 2010.

Download the Kauffman Index of Entrepreneurial Activity, 1996-2010 at: http://www.kauffman.org/newsroom/jobless-entrepreneurship-tarnishes-steady-rate-of-us-startup-activity.aspx