Tim Kane, at the Hudson Institute, has a new paper out with a simple title: "The Collapse of Startups in Job Creation". His paper is basically a slightly politicized version of the charts put out by the Bureau of Labor Statistics last month, under the headline "Entrepreneurship and the U.S. Economy". The first two charts are particularly striking. The first one looks at the number of startups in America -- companies less than one year old.
This shows a reasonably steady rise in entrepreneurship from 1994 to 2006, then a collapse as the housing bubble bursts, and -- most worryingly of all -- no recovery at all after the recession ends. Instead, we have significantly fewer startups right now than we did even at the depths of the recession.
If you look at the number of jobs at these startups, rather than the number of startups, the picture is equally bad, although the decline is older. This series peaked back in 2000, and has been declining ever since:
This doesn't make a lot of intuitive sense. As Kane writes,
Economic theory suggests that the modern economy offers a better environment for even more entrepreneurship. First, there is a wider technology frontier to explore. Second, a wealthier society enables more individuals to explore rather than merely work to survive. Third, the shift to services requires less startup capital than manufacturing or agriculture. In other words, the downward trend in the rate of entrepreneurship should, in theory, have rebounded by now.
Kane thinks that it's something to do with taxes and regulations; I don't buy it. But he also has a globalization argument: