Useful Stats: Six-Year Survival Rates, Entrepreneurship, and the Great Recession

As the Great Recession wanes, an increasing amount of research has been conducted to assess its impact on entrepreneurship in the United States. Authors with the Kauffman Foundation found that firm formation in the United States is remarkably constant over time, although the death rate of companies rises during recessions. Others found that despite the Great Recession causing many businesses to close their doors, the rapid rise of unemployment also drove an increase in entrepreneurs. Still, others argue that increased entrepreneurial activity was found to be related to unemployment only in those states that had already established strong levels of entrepreneurship prior to the recession.

The Bureau of Labor Statistics notes that since the Great Recession began in December 2007, establishment births have experienced the steepest decline since the Business Employment Dynamics (BDM) data series began in March 1994. This Digest article examines establishments that were “born” in March 2007, the earliest data-point before the onset of the recession, and their likelihood of surviving until March 2013. By using a six-year survival rate instead of the more common five-year rate, the most recent establishment survival data can be used and companies that began before the recession, rather than the heart of it, are able to be appropriately assessed.

Nationally, 656,107 businesses were established in the United States in 2007. Of these businesses, 303,457 (46.3%) survived until 2013. A state-by-state look reveals interesting results about where businesses that started just months before the onset of the recession had the highest survival rate.

Figure 1: Establishment Survival (2007-2013)

Overall, eight of the 10 states that had the highest 10-year establishment survival rate are also in the top 10 for six-year survival. Again, California had the highest survival rate, and again it was by a considerable margin – 15.2 percentage points higher than the second-place state. Massachusetts moved into second place after having the eighth highest 10-year survival rate.  North Dakota, South Dakota, and Washington are included in the top five states for business survival over both a six- and 10-year period.

Montana, who had the 7^th highest 10-year survival rate, dropped 24 spots in the six-year survival rate category. Similarly, Wyoming, which had the 12^th highest 10-year survival rate, dropped 20 spots in the six-year survival rate category. Idaho, which had the lowest six-year survival rate of all states, had a six-year rate that was just 0.6 percentage points higher than its 10-year survival rate. Idaho businesses that started in 2007 were just 1.7 percent more likely to survive until 2013 than a business that started in 2003.  

Kentucky, which ranked 39^th among all states in 10-year survival rate, ranked 15^th in the six-year rate.  Likewise, Rhode Island made a similar jump. After ranking just 47^th in 10-year survival rate, the state moved 19 spots to number 28 in six-year survival rate. Companies established in 2007 in Rhode Island were 28.6 percent more likely to survive to 2013 than companies established in 2003, the highest percentage difference among all states.

Overall, just less than half of the nation’s companies that started in 2007 were able to survive until 2013. Generally speaking, those states that were able to ensure business survival over a 10-year period between 2003 and 2013 were also able to do so over a six-year period. Likewise, the states that fared poorly in 10-year survival rate also typically ranked lower over the six-year period. This would suggest that there is indeed something inherent in each state that allows for the survival of its businesses – something that certainly warrants future research.  

Establishment Survival Rate and Rank, 2007-2013:

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