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Entrepreneurs dying off? U.S. businesses collapsing faster than being formed, study says

By Catholic Online (NEWS CONSORTIUM)
5/7/2014 (3 years ago)
Catholic Online (www.catholic.org)

Brookings Institution offers some helpful hints to reverse this trend

There's something seriously amiss about new businesses in the United States. According to a new study by the Brookings Institution, many in America are abandoning their visions. New businesses, the institution has found, are falling apart faster than they are being built. However, the Brookings Institution has some helpful hints to turn this troubling trend around.

A recent study concluded that the American economy is less entrepreneurial now than at any point in the last 30 years.

A recent study concluded that the American economy is less entrepreneurial now than at any point in the last 30 years.

Highlights

By Catholic Online (NEWS CONSORTIUM)
Catholic Online (www.catholic.org)
5/7/2014 (3 years ago)

Published in Business & Economics

Keywords: Brookings Institution, Christopher Ingraham, new businesses, study


LOS ANGELES, CA (Catholic Online) - The study concluded that the American economy is less entrepreneurial now than at any point in the last 30 years. The Brookings Institution analyzed the rates of new business creation and destruction in the U.S. since 1978.

During the most recent three years of the study, 2009, 2010 and 2011, new businesses were closing up faster than they were being formed, which was a first for the U.S. economy. New businesses creation, which was measured as the share of all businesses less than one year old) declined by about half from 1978 to 2011.

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The analysts were forthright about their conclusions.  If the decline persists, "it implies a continuation of slow growth for the indefinite future." A lack of economic dynamism, such as the precipitous decline since 2006, may be why our current recovery has felt like much less than a recovery.

Annual job growth rates have stubbornly refused to budge above 2 percent for the duration of the recovery, Matt O'Brien noted on Wonkblog.

Looking beyond the national numbers to examine the change in new firms at state and metro levels, the study's authors found reactions to national trends.

Mapping state data, all states showed steep drops in new firms. "New York stands out for its much smaller decline in the share of new companies than other states -- only 18 percent, compared with the 50-state average of 47.2 percent. Illinois, Texas, New Jersey and Missouri round out the top five," Christopher Ingraham of the Washington Post notes.

"At the other end, Alaska had the largest drop in new business, at 61 percent. Hawaii, Vermont, New Mexico and Wyoming rounded out the bottom five. Teasing out the causes of the overall decline or the variation between states is difficult; the authors stressed to me that their data don't answer the questions of why or how just yet. But they will be looking into that in the months ahead."

There seemed to be no significant correlation. "New York, which showed the lowest decrease in new businesses, actually scored dead last in the Tax Foundation's ranking. Wyoming had one of the largest declines, even though it ranked first in the Tax Foundation's report."

In conclusion, the Brookings findings suggests that when it comes to luring new businesses to a given state, there are a lot more factors at play than straightforward calculations of corporate tax rates.

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