Why American entrepreneurship is declining

And why it might not be such a bad thing.

In 2012, for the second consecutive year, the number of Americans starting their own businesses declined.

A report from the Kauffman Foundation found that 0.30 percent of American adults started their own business each month, down from 0.32 in 2011.

The annual Kauffman Index of Entrepreneurial Activity shows there were 514,000 new business owners a month last year. In 2011, that number was 543,000. But is this reduction a bad thing?

"It's likely not a coincidence that the number of new businesses created dropped when the economy improved last year. While a stronger economy is good for business growth, it also means the unemployed find jobs instead of starting firms," said Dane Stangler, director of research at the Ewing Marion Kauffman Foundation, in a statement. "During the Great Recession when the labor market was at its weakest, business creation rates rose to record highs. The 2012 rates are a return to longer-term levels."

In a way, we're getting back to normal.

So where was were the highest rates of business creation? As you can see in the map above, western states had the highest rates (while the Midwest was lowest). The top 5 states with the highest entrepreneurial rates were Montana, Vermont, New Mexico, Alaska, and Mississippi.

And here are some interesting demographic statistics:

  • Men started fewer businesses (0.42 percent in 2011 to 0.38 percent in 2012) while the female entrepreneurship rate stayed about the same, 0.23 percent.
  • The number of new Latino entrepreneurs has nearly doubled since 1996.
  • The share of entrepreneurs aged 55-64 increased dramatically from 14.3 percent of the four age categories in 1996 to nearly one-quarter in 2012.

Here's a deeper look at some of the statistics from the report. But what do they tell us about the economy and job market?

"Examining entrepreneurial activity rates by demographics can point us to inefficiencies or changes in the economy," said Robert W. Fairlie, the study's author and director of graduate programs in Economics at the University of California, Santa Cruz, in a statement. "The fact that the rate for men starting businesses dropped so significantly in 2012, when unemployment also went down, suggests that men were getting jobs so they didn't feel the pressure to start businesses as a last resort."

This post was originally published on Smartplanet.com

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