Small Business Week 2017: The State of Entrepreneurship and Small Business

Raymond J. Keating, Chief Economist

Raymond J. Keating serves as chief economist for the Small Business & Entrepreneurship Council (SBE Council). He writes, speaks and testifies before Congress and state bodies on a wide range of issues affecting the entrepreneurial sector of the economy. Keating authors SBE Council’s annual “Small Business Survival Index” and the “Small Business Tax Index.” He also is the author of the SBE Council book Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment.

In addition to policy papers and reports, he pens the weekly SBE Council Cybercolumn, Fact of the Week, Capital & Credit Watch, Technology & Intellectual Property analysis, Energy & Entrepreneurs brief, and the State of the Week report for SBE Council.

As a book author, in addition to Unleashing Small Business Through IP, Keating has written four nonfiction books – “Chuck” vs. the Business World: Business Tips on TV (2011), U.S. by the Numbers: What’s Left, Right, and Wrong with America State by State (2000), New York by the Numbers: State and City in Perpetual Crisis (1997), and D.C. by the Numbers: A State of Failure (1995). He also has contributed essays to four other books. For good measure, Keating is an award-winning novelist. He has written five thrillers in his Pastor Stephen Grant novels series – Warrior Monk (2010), Root of All Evil? (2012), An Advent for Religious Liberty (2012), The River (2014), and Murderer’s Row (2015).

Keating has written hundreds of articles, with pieces published in such periodicals as The Washington Post, The Wall Street Journal, The New York Times, Boston Globe, National Review, Investor`s Business Daily, Chicago Tribune, The Washington Times, New York Post, Daily News, and many more.

His areas of expertise include taxation; federal, state and city budget issues; monetary policy; regulation; energy policy; supply-side economics; the economics of sports stadiums and arenas; the U.S. economy; trade; intellectual property and property rights in general; and a host of other small-business issues.

Keating also wrote a newspaper column for Long Island Business News for seven years, previously for Newsday on Long Island for more than 11 years, and for the New York City Tribune for two years. And he served an adjunct business professor at Dowling College for a decade.

Keating holds an MA in economics from New York University, an MBA in banking and finance from Hofstra University, and a BS in business administration and economics from St. Joseph’s College.

Small Business Week 2017:  The State of Entrepreneurship and Small Business

It’s Small Business Week 2017 – a focal point on the calendar to celebrate and appreciate entrepreneurs, small businesses and their employees, and all that they accomplish in terms of innovation, job creation and economic growth.

It’s also an appropriate time to take an updated look at the basic state of entrepreneurship and small business in the U.S. economy. Unfortunately, the level of entrepreneurship has faltered, especially during the Great Recession and its subsequent poor recovery. The very latest data shows that we still await a real reinvigoration of America’s entrepreneurial spirit.

In an August 2016 analysis titled Gap Analysis #3: Millions of Missing Businesses, SBE Council analyzed an assortment of data, and concluded that the U.S. experienced “a dramatic decline in entrepreneurship and in the number of businesses over the past near-decade.”

Specifically, the following was reported in this analysis:

722,000 Missing Incorporated Self-EmployedIf the pre-recession percentage high (2008), that is, as a share of the relevant population, had been registered in 2015, there would have been approximately 722,000 more incorporated self-employed than there were.

2.2 Million Missing Unincorporated Self-EmployedIf the recent pre-recession percentage high (2004), that is, as a share of the relevant population, had been registered in 2015, there would have been approximately 2.2 million more unincorporated self-employed than there were.

735,000 Missing Employer FirmsIf the recent pre-recession percentage high (2005), that is, as a share of the relevant population, had been registered in 2013, there would have been approximately 735,000 more employer firms than there were.

106,000 Missing Annual StartupsIf the recent pre-recession percentage high (2006), that is, as a share of the relevant population, had been registered in 2015, there would have been approximately 106,000 more startups (business establishments less than one year old) than there were in that year.

 867,000 Missing Businesses According to IRS Tax ReturnsIf the recent pre-recession percentage high (2008), that is, as a share of the relevant population, had been registered in 2015, there would have been approximately 867,000 more businesses than there were.

 4.8 Million Missing BusinessesHowever, if the previous growth in the business share of the relevant population had continued after 2008 (based on the IRS data), there would have been 4.8 million more businesses in 2015 than there actually were.

Some of these numbers have subsequently been updated – incorporated self-employed, unincorporated self-employed, and the number of employer firms. So, let’s get an update.

The Latest Data on Entrepreneurship

Incorporated Self-Employed. First, in terms of incorporated self-employed, as reported in August, as a share of the civilian noninstitutional population, the 2008 high was 2.474 percent, with 2015 registering 2.186 percent. In 2016, that share increased to 2.226. So, we’ve experienced some growth or recovery for the past five years.

However, the 2016 level not only remained below the 2008 high, but below the levels registered each year from 2003 through 2009. In March of this year, the level stood at 2.256. So, if we had been at the 2008 level in March, there would have been 554,000 more incorporated self-employed than there actually were.

Unincorporated Self-Employed. Since the mid-1990s, there has been a general decline in the number of unincorporated self-employed, as well as a decline as a share of the civilian noninstitutional population. After the 2001 recession and poor initial recovery, there was a bit of a recovery in the number of unincorporated self-employed, with the share registering 4.63 percent in 2006. However, decline resumed and dramatically accelerated.

In fact, the self-employed share of the population dropped below 4 percent in 2011 for the first time ever, and the decline was steady from 2006 to 2014, with stagnation following in 2015 and 2016, when the rate came in at 3.79 percent. As of March 2017, the rate had fallen to 3.76 percent. If we had been at the 2006 level in March of this year, there would have been 2.22 million more unincorporated self-employed than there actually were.

Employer Firms. As noted in the August report: “Consider that the number of employer firms came in at 6.05 million in 2007, registering as 2.61 percent of the relevant population. The number declined to 5.68 million in 2011, climbing back to 5.78 million in 2013. But as a share of the population, it has fallen steadily, hitting 2.35 percent in 2013. By the way, looking back at data to 1988, this compared to a high of 2.73 percent in 1996.”

In 2014, the number of employer firms again moved up to 5.83 million, but as a share of the civilian noninstitutional population, the share stagnated at 2.35 percent. If the 2014 level had managed to match the 2007 level, then there would have been 646,000 more employer firms in 2014 than there were.

Total Missing U.S. Businesses

In the end, based exclusively on these self-employed and employer data, it’s a fair estimate that the U.S. is missing some 3.42 million businesses.

That marks an improvement from 3.7 million missing businesses cited in our August report based on the same combination of the most often cited self-employed and employer firm data. However, it continues to show a dearth in entrepreneurship.

Looking ahead, entrepreneurship needs an improved policy foundation.

In our November report titled Gap Analysis #8: Policy Solutions for Closing the Gaps in Our Economy, SBE Council noted that policy changes needed center on tax relief and reform, regulatory relief and reform, free trade, reining in government spending, and sound monetary policy – and we offered examples to follow from recent presidential administrations.

The need for this agenda has not changed, with hope coming from initial moves advanced under our new presidential administration and Congress on the tax and regulatory fronts. Our elected officials need to continue to move forward to get U.S. entrepreneurship flourishing again.

 


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