A new study on business startup growth by the Economic Innovation Group is getting a lot of media hype this week. It’s an interesting assessment so the media attention is warranted. The study looks at US business startup rates between 2010 and 2014 and finds many worrying signs. Overall, business startup rates are down and the concentration of business activities are growing. In fact, they find that twenty US counties account for ½ of new business establishments and that 50% of total US job growth is concentrated in only 2% of US counties. These worrisome trends on business startups aren’t necessarily new news—we’ve discussed this topic many times in the past. And, we should remain worried. But, let me throw out a few provisos to this study. The analysis uses data from the Census County Business Patterns program which measures formally licensed business establishments. They thus miss the dynamic activity underway in the 1099 Economy of free lancers, self-employed and other gig economy workers. This is a complex situation and the data are somewhat murky, but we do know that many parts of the 1099 Economy are growing. For example, the latest Census data show that the number of self-employed in the US jumped 3.6 percent between 2013 and 2014. This group totals 23.8 million people, so they are a sizable chunk of our economy. Meanwhile, other data show some declines in the gig economy, especially in rural areas. In addition, we know that the rise of Walmart, Dollar General and other such large players are having a huge impact on small business activity in rural areas. The concentration of retail activity in these larger firms is also having a big impact on startup rates in rural America and elsewhere.
So where does this leave us? While I have a few wonky minor quibbles with the EIG data, we can’t avoid the sobering message found this report. We’ve got some challenges in terms of getting more regions and more people fully engaged in our ongoing economic recovery.