Entrepreneurship Roughly Constant Over Time

Businessweek reports that an annual study by the Kauffman Foundation has come the same conclusion that it has for the last 11 years - an average of .29% of the adult US population starts a new business each month. While this means that 465,000 new businesses are started every month, the relative constancy of new business formation is unexpected.

Most people would intuitively believe that more new businesses would be formed during periods of either rapid growth or recession (due to reduced opportunity costs associated with starting a new business). Yet the data suggests that the rate of business formation is largely unaffected by macroeconomic events.

Of course, considering that most new businesses are in the construction and service industries, it isn't hard to rationalize that these areas of the economy have been less affected by volatility than the rest of the economy. Although the housing boom crashed rather spectacularly right after the last data were collected. Next year's survey will help to clear up the effect of sectoral influence on entrepreneurship.

Nonetheless, the most attention-grabbing part of the survey was the racial breakdown. Asian entrepreneurship grew faster than average from a higher basis than average, non-Latino whites were average, and African Americans actually fell from a significantly lower basis than average.

The real kicker of course is that immigrants of all racial groups clearly outdistanced even the most entrepreneurial racial group.

The geographic distribution of entrepreneurship was also interesting. Chicago (.18%) and Detroit (.13%) were both well below the rate for African Americans. The Midwest has been economically lagging, so it looks like the effect of slower growth on encouraging new business formation either doesn't exist at all, or is counter to its intuitive direction.

Entrepreneurship is critical to the future of the economy because owning your own business is one of the best ways to build wealth. Most "wage slaves" never build enough capital to get ahead because it takes dedication to save money that comes in the form of a paycheck. Business owners on the other hand, build equity in their business and have something significant to sell on retirement.