Kauffman Index of Entrepreneurial Activity 1996-2010

Abstract

The Kauffman Index of Entrepreneurial Activity is a leading indicator of new business creation in the United States. Capturing new business owners in their first month of significant business activity, this measure provides the earliest documentation of new business development across the country.

The percentage of the adult, non-business-owner population that starts a business each month is measured using data from the Current Population Survey (CPS). In addition to this overall rate of entrepreneurial activity, separate estimates for specific demographic groups, states, and select metropolitan statistical areas (MSAs) are presented. The Index provides the only national measure of business creation by specific demographic groups.

New 2010 data allow for an update to previous reports, with consideration of trends in the rates of entrepreneurial activity over the fifteen-year period between 1996 and 2010. The Kauffman Index reveals important shifts in the national level of entrepreneurial activity, and shifts in the demographic and geographic composition of new entrepreneurs across the country. Key findings for 2010 include:

• In 2010, 0.34 percent of the adult population (or 340 out of 100,000 adults) created a new business each month, representing approximately 565,000 new businesses per month. The 2010 entrepreneurial activity rate is the same as the 2009 rate, but represents an increase from 2007, and represents the highest level over the past decade and a half.

• The recent upward trend in entrepreneurship rates contrasts with a recent downward trend in employer business creation. From 2007 to 2010, the quarterly employer establishment birth rate dropped from 0.13 percent to 0.10 percent. Over this same period, the monthly entrepreneurship activity rate increased from 0.30 percent to 0.34 percent. These opposing trends may be due to the Great Recession and its high unemployment rates pushing many individuals into business ownership. These individuals probably were more likely to start sole proprietorships and other non-employer firms instead of starting more costly employer firms.

• The entrepreneurial activity rate among Latinos increased from 0.46 percent in 2009 to 0.56 percent in 2010, reaching the highest level over the past decade and a half.

• The Asian entrepreneurial activity rate also increased substantially in 2010 (from 0.31 percent to 0.37 percent).

• The African-American and non-Latino white entrepreneurial activity rates decreased from 2009 to 2010.

• Immigrants were more than twice as likely to start businesses each month than were the native-born in 2010. The immigrant rate of entrepreneurial activity increased sharply, from 0.51 percent in 2009 to 0.62 percent in 2010, further widening the gap between immigrant and native-born rates. The native-born rate is 0.28 percent.

• The youngest age group (ages twenty-five to thirty-four) experienced an increase in entrepreneurial activity from 2009 to 2010 (0.24 percent to 0.26 percent).

• Over the past decade and a half, Latinos, Asians, immigrants, and the oldest age group (ages fifty-five to sixty-four) experienced rising shares of all new entrepreneurs, partly because of rising rates of entrepreneurship, but also because of increasing populations.

• Entrepreneurship rates increased the most for high school dropouts (0.49 percent to 0.59 percent), and decreased the most for high school graduates (0.38 percent to 0.34 percent) in 2010, also signaling that opposing trends may be due to the Great Recession pushing many individuals into business ownership because of high unemployment rates.

• The construction industry had the highest rate of entrepreneurial activity of all major industry groups in 2010 (1.60 percent). The second-highest rate of entrepreneurial activity was in the services industry (0.44 percent).

• The entrepreneurial activity rate increased in the West from 0.38 percent in 2009 to 0.41 percent in 2010. Business-creation rates decreased in the Northeast and Midwest and remained the same in the South.

• The states with the highest entrepreneurial activity rates were Nevada (510 per 100,000 adults), Georgia (510 per 100,000 adults), California (470 per 100,000 adults), Louisiana (460 per 100,000 adults), and Colorado (450 per 100,000 adults). The states with the lowest entrepreneurial activity rates were West Virginia (170 per 100,000 adults), Pennsylvania (180 per 100,000 adults), Wisconsin (180 per 100,000 adults), South Dakota (190 per 100,000 adults), and Indiana (190 per 100,000 adults).

• The states experiencing the largest increases in entrepreneurial activity rates over the past decade were Georgia (0.23 percentage points), Nevada (0.19 percentage points), Tennessee (0.14 percentage points), Massachusetts (0.13 percentage points), California (0.11 percentage points), Texas (0.11 percentage points), Kentucky (0.11 percentage points), and Florida (0.10 percentage points). The states that experienced the largest decreases in their rates were Wyoming (-0.18 percentage points), New Mexico (-0.14 percentage points), and Alaska (-0.13 percentage points).

• Among the fifteen largest MSAs in the United States, the highest entrepreneurial activity rate in 2010 was in Los Angeles (0.62 percent). The large MSA with the lowest entrepreneurial activity rate was Philadelphia (0.15 percent).

Keywords: Kauffman index, entrepreneurial, entrepreneur, activity, US, United States, new business, data, startup