What is behind the universal decline in entrepreneurship in America?

by Ryan Streeter on August 14, 2014. Follow Ryan on Twitter.

I find this graph alarming and the underlying data so stunning that you can’t help but wonder why more people don’t write about it.

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This is from a Brookings paper by Bob Litan and Ian Hathaway. The graph is alarming because it shows the long-term decline in startups. The underlying data is stunning because it shows that the decline in entrepreneurial activity is nearly universal in the U.S.

This appendix (PDF) to the paper shows that firm entry has declined in almost all of the nation’s 300+ metropolitan areas – even in areas known to be entrepreneurial hotspots like Austin, TX, or the Bay Area. It also shows that the job reallocation rate has declined universally as well. Job reallocation is a good measure of an economy’s dynamism. The literature suggests that the more reallocation you have, the better the wages and job quality, especially for younger workers. So a decline in this area is also a signal of decreasing dynamism.

No one knows for sure why we are seeing fewer and fewer new firms each year. But almost everyone agrees it’s bad, since new firms are responsible for the lion’s share of net new jobs each year. A good many commentators think that the growing regulatory state and healthcare costs have a lot to do with this decline. That certainly checks out anecdotally as you talk to business owners. But you can’t help wonder if something else is going on, too, that we haven’t yet figured out.