Wednesday, June 3, 2015

The Decline of Small Business Employment in America

Starting a new business has always been a risky endeavor.  Today, 25% of all new businesses fail in the first year. 50% in the first 4 years, and by year 10, only about 29% are left standing.  With odds like that it's no wonder that business creation is in decline in America.  What person or lender is going to be willing to risk everything by funding something that could easily fail in the first year, and increasingly, every year thereafter?
Still -- except for recessions -- this country has always been able to create more new jobs from startup companies than job losses due to failed ones, as noted by this chart from the Bureau of Labor Statistics' Business Employment Report from 2009:

Most notably from the above chart, employment from new businesses has been steadily declining since 1999 when new business job creation peaked in America at 1.95 million.  Then, at the worst point of the Great Recession, it fell to a twenty-year low of just 1.15 million.

Following the end of that recession, and except for a single-quarter aberration in 2012, job creation somewhat rebounded and has been pretty much moving sideways at around 1.3 million jobs; with losses mostly remaining lower than those being created.

Whether or not this is a trend or merely a pause in pre-recession declines is anyone's guess.  It could be that the pause is a result of the reopening of once-profitable businesses that had failed previously during the recession.

Even so, job creation from new businesses is nowhere near the high of the 1990's; or, for that matter, 2004 levels.  Some say the decline is due to the high cost of compliance with local, state, and federal rules governing businesses and their operations.  Others say the high failure rate has made less money available for new ventures.  Another might be the rise of the "big box" stores like Walmart and Target that are crowding out small retail businesses. Still, many think the pool of new ideas is just logically shrinking.  Whatever the case, small businesses and their share of jobs are on the wane:

As this graph shows, small businesses -- businesses under 250 workers -- have declined from providing 51% of all jobs in the U.S, to just a little over 47%.  The simple reality is that big companies have become the engine for job growth.  The era of small businesses being the job creators is over.  The American Dream may have become just that -- a dream.


Startup and Business Failure Statistics:

Entrepreneurship and the U.S. Economy:



No comments: