Being Their Own Boss: A Review of American Demography and Entrepreneurship
American Enterprise Institute
February 27, 2020
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Key Points
- Economically beneficial entrepreneurship is declining in America. This decline is not caused by a change in individual-level desire to be an entrepreneur or by fewer people trying to make entrepreneurship work, but rather by an inability to make new entrepreneurial endeavors take off.
- Academic research suggests that this difficulty in achieving scale is directly related to demography: An older population with slower labor force growth makes it much harder for new firms on both the supply and demand side of the economic equation. Even startups that do “make it” and launch initial public offerings increasingly show signs of weakness in the market.
- While policymakers have some tools to fight back against these trends, demographically rooted trends are extremely unlikely to change rapidly.
Introduction
Americans envision ourselves as an entrepreneurial, can-do kind of people. But this image is increasingly difficult to sustain. In 1910, the earliest avail-able data, 36 percent of American workers were self-employed. Today, just 9 percent are. In 2005, Americans started 45 new businesses per 100,000 people; today that figure is nearer to 30 new businesses per 100,000 people, a decline of a third in just 15 years. In 1950, the US had about 21 businesses per thousand people, and from 1988 to 2006, the United States consistently had about 20 firms for every thousand people. Today, there are only about 18.5 firms per thousand people, with no speedy recovery in sight. Meanwhile, the firm startup rate has declined from about 14 percent in 1975–90 to 12 percent today.
These declines in business formation and startup activity are a problem for the American economy. But they also might be a problem for America in a deeper, cultural sense: Perhaps entrepreneurship is in decline because Americans have lost the can-do business spirit. Perhaps the fire has gone out of modern Americans, and they are con-tent with economic stagnation and workplace drudgery.
This hypothesis would be depressing if it were true. However, the best evidence suggests that Americans are just as, if not more, entrepreneurial than ever, but they face new obstacles to their success. Americans are working as freelancers, filing business income on their taxes, filing business application paperwork, and starting one-person businesses at higher rates than ever before; they just are not succeeding in turning those businesses into economic growth.
So if it is not a loss of the entrepreneurial spirit, what has happened to economic dynamism in America? The answer that this report will explore is simply that America’s demographic position has become unfavorable to entrepreneurship.