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New Business Startups Declined in 2011: Arizona Tops List of U.S. States

Posted by: Mark Marich on March 19, 2012 Source: Policy Dialogue on Entrepreneurship

The latest Kauffman Index of Entrepreneurial Activity shows that the rate of new business creation dipped during 2011 and startup founders remained more likely to go it alone than to employ others—quite possibly due to the continued recession and the typically higher rate of necessity entrepreneurs during periods of economic distress.

The 2011 Index shows a 5.9 percent drop from 2010 with approximately 543,000 new businesses created each month during the year, or 0.32 percent of American adults per month in 2011. This remains among the highest levels of entrepreneurship over the past 16 years. The quarterly employer firm rate also remained essentially flat from 2010 to 2011 at 0.11 percent.

Geographically, entrepreneurial activity rates decreased in all U.S. regions except the Northeast, which experienced a slight increase. Rates remain highest in the West and lowest in the Midwest. Arizona had the highest entrepreneurial activity rate, with 520 per 100,000 adults creating businesses each month during 2011. Rounding out the top five highest rates were Texas (440 per 100,000 adults), California (440 per 100,000 adults), Colorado (420 per 100,000 adults) and Alaska, with 410 businesses started per 100,000 adults. The states with the lowest rates of entrepreneurial activity were West Virginia (150 per 100,000 adults), Pennsylvania (160 per 100,000 adults), Hawaii (180 per 100,000 adults), Illinois (200 per 100,000 adults), Indiana (200 per 100,000 adults) and Virginia (200 per 100,000 adults).

Other key findings for 2011 include:

  • Both immigrant and native-born entrepreneurial activity declined slightly in 2011; however, immigrants remained more than twice as likely to start new businesses as were the native-born.
  • Entrepreneurial activity decreased slightly for both men and women. For men, the entrepreneurial activity rate decreased from 0.44 percent in 2010 to 0.42 percent in 2011, reversing an upward trend over the past few years. The female entrepreneurship rate decreased from 0.24 percent to 0.23 percent.
  • The Latino share of all new entrepreneurs rose from a little more than 10 percent in 1996 to 22.9 percent in 2011, reflecting longer-term trends of rising entrepreneurship rates and a growing share of the U.S. population. The Asian share of new entrepreneurs also rose substantially from 1996 to 2011, but remains relatively small at 5.3 percent. The white share of new entrepreneurs declined during this time period, while the African American share increased slightly.
  • By industry, construction had the highest entrepreneurial activity rate at 1.68 percent, continuing an upward trend over the past several years, followed by the services industry at 0.42 percent. The manufacturing startup rate was the lowest among all industries, with only 0.11 percent of non-business owners starting businesses per month during 2011.
  • The entrepreneurship activity rate among the least-educated group (high school dropouts) decreased from 0.59 percent in 2010 to 0.57 percent in 2011 but remains significantly higher than for groups with other educational levels. The largest decrease in entrepreneurial activity occurred for college graduates.
  • Among the United States’ 15 largest metropolitan statistical areas, Los Angeles had the highest entrepreneurial rate (580 per 100,000 adults) in 2011. Chicago and Detroit had the lowest rates at 180 per 100,000 adults.

“The Great Recession has pushed many individuals into business ownership due to high unemployment rates,” said Robert Litan, vice president of research and policy at the Kauffman Foundation. “However, economic uncertainty likely has made them more cautious, and they prefer to start sole proprietorships rather than more costly employer firms. This ‘jobless entrepreneurship’ trend negatively effects job creation and the larger economic recovery.”

Interactive data spanning all 16 years is available at kauffman.org/kiea.

Category:  General 

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