Ryan Decker, John Haltiwanger, Ron Jarmin, and Javier Miranda write,
the typical young firm (as captured by the median) exhibits little or no growth even conditional on survival…however, among all the young firms, a few do exhibit very high rates of growth which yields a high mean growth rate.
the annual startup rate declined from an average of 12.0 percent in the late 1980s to an average of 10.6 percent just before the Great Recession, when it plummeted below 8 percent.
firms aged five years or less made up about 47 percent of all firms in the late 1980s, but this number declined to 39 percent of all firms before the start of the Great Recession, and has declined further since then.
They point to one factor that I had thought of, which is that large retailers are reducing entrepreneurial activity in the “mom and pop” sector.
They also point to the possibility that startups now must spend more resources assembling a trained work force. That sounds to me like an intriguing notion. It might be the case that older, more experienced firms are better able to take advantage of the Great Factor-Price Equalization. In any event, it is probably hard to find a profitable strategy that involves creating lots of new jobs for unskilled workers in the U.S.
Let me also propose a New Commanding Heights explanation. The economy is shifting inexorably toward a larger share of spending on education and health care. Those are sectors where it is relatively hard to create a successful start-up. Do you compete against the incumbents, which have huge advantages in terms of reputation and government suppport? Or do you try to sell to the incumbents, in which case you have to overcome their bureaucracy?
Sure, there are lots of start-ups in education and health care. But my guess is that if you could come up with a way to measure the amount of effort required to be successful in a start-up, that amount would be higher in education and health care than in sectors, such as manufactured goods, on which the share of spending is declining.
Remember this story?
Health is just so heavily regulated, it’s just a painful business to be in. It’s just not necessarily how I want to spend my time. Even though we do have some health projects, and we’ll be doing that to a certain extent. But I think the regulatory burden in the U.S. is so high that I think it would dissuade a lot of entrepreneurs.
If demand shifts to sectors where entrepreneurship is harder, the rate of entrepreneurship is going to decline.