Kaufmann Index of US Entrepreneurial Activity: Silicon Valley leads; immigrants have higher entrepreneurial rates

The recent report by the Kaufmann Index of US Entrepreneurial Activity sheds light on interesting startup trends from 1996 to 2013. Led by Robert Fairlie, Professor of Economics at the University of California, Santa Cruz, the report is packed with US data which indicates that the number of entrepreneurs per 100,000 people in the Silicon Valley area is 570, followed by Los Angeles (490), Miami (430), Houston (340) and New York – New Jersey (320).

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The Kauffman Index measures the monthly business-creation rate at the individual owner level, reporting the percentage of non-business-owning adults who start businesses. Data also reveals entrepreneurial activity by gender, race, immigrant status, economic sector, age and education.

In 2013, 0.28 percent of the adult population in the US, or 280 out of 100,000 adults, created a new business each month, which represents approximately 476,000 new businesses per month. The US unemployment rate was 8.5 percent at the end of 2011 and dropped to 6.7 percent at the end of 2013.

Age, gender, education

Male entrepreneurial activity rate was 0.34 percent in 2013, and the female entrepreneurship rate was 0.22 percent. Entrepreneurial rate in the age group 20-34 was 0.18 percent in 2013, for people 35-44 years of age it was 0.31 percent, and for ages 55-64 it was 0.31 percent. An aging population has led to a rising share of new entrepreneurs in the age group 55-64 years; they represent 23.4 percent of new entrepreneurs in 2013.

The least educated have the highest rate of business creation, which might be due to more limited labour market opportunities as compared to more highly educated groups.

Geography

Entrepreneurial activity rates reflect strong geographical patterns in the US. Rates of new business creation are the highest in the West and lowest in the Midwest. The states with the highest entrepreneurial activity rates were Montana (610 per 100,000 adults), Alaska (470 per 100,000 adults), South Dakota (410 per 100,000 adults), California (400 per 100,000 adults) and Colorado (380 per 100,000 adults).

Among the fifteen largest metropolitan areas in the US, San Francisco (0.57 percent) had the highest entrepreneurial activity rate in 2013 and Philadelphia (0.18 percent) had the lowest rate.

Ethnic groups and immigrants

The business creation rate remains nearly twice as high in immigrant populations as the native-born rate. Over the past decade, Latinos, Asians and other immigrants experienced rising shares of all new entrepreneurs, due to increasing populations as well as rising entrepreneurship rates.

The immigrant share of new entrepreneurs in 2013 was 25.9 percent, up from 19.1 percent in 2003. The entrepreneurial activity rate was 0.19 percent in 2013 for African-Americans, 0.38 percent for Latinos, 0.28 percent for Asians, and 0.27 percent for whites. The Latino share of all new entrepreneurs rose from 16.0 percent in 2003 to 20.4 percent in 2013. The Asian share of new entrepreneurs is 6.1 percent.

The native-born rate has remained relatively flat over the last two decades. Immigrants were substantially more likely to start businesses each month than were the native-born citizens in 2013. For immigrants, 430 out of 100,000 people started businesses each month, compared with 250 out of 100,000 people for the native-born population.

Other trends

Entrepreneurial activity rates differed substantially by major industry groups. Though the Internet and mobile sectors understandably attract a lot of attention, in 2013 the entrepreneurial activity rates were actually highest in the construction industry at 1.27 percent, followed by services (0.37 percent) and manufacturing (0.10 percent).

In 2013, 78.2 percent of new entrepreneurs were drawn from those who were not coming directly out of unemployment. Over the past eighteen years, the share of new business creation from ‘opportunity’ entrepreneurship increased when economic conditions were improving and decreased when economic conditions were becoming worse. The largest share of ‘opportunity’ entrepreneurship occurred at the height of the ‘Roaring 90s,’ and the lowest share was in 2009 at the end of the recession.

The recession may have pushed many individuals into business ownership because of high unemployment rates. These individuals were probably more likely to start sole proprietorships and other non-employer firms instead of more costly employer firms, according to the report.

The report is packed with other data which allows readers and analysts to draw a range of conclusions and make appropriate policy interventions. The report also opens to the door to other countries to share their own analysis on entrepreneur trends with respect to age, geography, gender and sector.

Website : Kaufmann


Madanmohan Rao

Madanmohan Rao

Madanmohan Rao is research director at YourStory Media and editor of five book series (http://amzn.to/NpHAoE). His interests include creativity, innovation, knowledge management, and digital media. Madan is also a DJ and writer on world music and jazz. He can be followed on Twitter at @MadanRao