What’s driving America’s drop in entrepreneurial activity?

by Ryan Streeter on October 21, 2014. Follow Ryan on Twitter.

I’ve written about this trend before:

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This interview by Jim Pethokoukis with Ian Hathaway on this trend is interesting.

Young firms are declining as a share of the total number of firms. We’ve covered this before and previously linked to Hathaway’s recent article with Bob Litan on this.

One thing to draw attention to, though, are Hathaway’s non-policy speculations about why this is so (he also suggests that regulatory and education policy are important factors in all this). He says:

One explanation, which isn’t very exciting, is just that we experienced high growth, population growth in certain regions, businesses needed to be formed to meet that local demand and after that growth slowed down, the firm entry rates maybe came down with it.

Another explanation has to deal with business consolidation. So economic theory would say that the more consolidated an industry is, the higher the barriers are to firm entry.  There may be a connection there; others have talked about this.  It’s something that we’ve seen in a number of sectors.  I have some more research coming out in the coming weeks and months that will address that issue as well.

Whatever the case, the numbers don’t lie. Here are some charts to a recent Haltiwanger et. al. paper that Pethokoukis also links to:

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A lot of this trend appears to be driven by loss of startup activity in retail and services:

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