Changes in Prevalence of Entrepreneurship in U.S., 1989 – 2016

This analysis examines whether the prevalence of entrepreneurship has changed over the past thirty years. The data can be interpreted in one of two ways: (1) as suggesting an end to small business growth in 2004 or (2) as a random walk with no long-term change.

Data and Metrics

I use data from the Survey of Consumer Finances.1 Entrepreneurship researchers conventionally uses one of two methods for identifying entrepreneurs in survey data: (1) a “self-employed” labor market status2, or (2) reported possession of an actively-managed business.3 If either conditions holds, then the household is counted as engaged in entrepreneurship.

Findings

Figure 1 (below) depicts our estimates of entrepreneurship from 1989 to 2016, using SCF data. The dots represent the estimated percentage of U.S. households engaged in entrepreneurship, and the vertical lines emanating from those dots depict these estimates standard errors.4

Figure 1

Overall entrepreneurship rates (red line) appear to have remained constant between 1989 and 2016. About 16.6% of households qualify as being engaged in entrepreneurship in 1989, versus 16.7% in 2016. It is uncertain whether entrepreneurship was rising at a barely-perceptable long-term rise pre-2004 and similarly slow decline post-2004, or whether rates have been bouncing between a normal 14% to 18% rates.

Discussion

If we interpret these findings to suggest a slow rise and decline of entrepreneurship pre- versus post-2004, then changes in self-employment seems to be the driving these trends. From 1995 to 2004, there is a rise in the prevalence of self-employment that could credibly deemed to be significant. By contrast, there has been relatively little change in the prevalence of actively-managed businesses. This line of interpretation leads us to ask what happened around 2004 to change long-term trends in self-employment.

If we interpret these findings as suggesting no long-term change, then a different set of questions emerge. Over the past several decades, governments have launched a range of programs and policy reform initiatives designed to promote small business. Why haven’t they been able to change rates of entrepreneurial participation? In and of themselves, these findings do not serve as conclusive proof these these entrepreneurship-promoting initiatves have been ineffective. For example, it is possible that non-policy facets of the economic environment have become more hostile to entrepreneurs, and these programs have prevented what would have been a decline in entrepreneurship in their absence. Still, it is quite possible that all of the resources and energy that we are pouring into entrepreneurship promotion is not effective.

For More

You can download the R Markdown file used to generate these results from Open Science Framework. The data used in this analysis is available for download here.

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