Reversing a six-year downward trend, activity in established small businesses increased last year, according to the 2015 Kauffman Index: Main Street Entrepreneurship, a new report that tracks small business activity and ownership in the United States. Though the number of established small businesses is increasing, the gain remain below pre-recession levels and just above the historical norm.
The Main Street Entrepreneurship Index is an indicator of main street business activity, presenting trends over the past two decades, focusing on established small businesses (firms older than five years with less than 50 employees) and trends in ownership rates. The Index measures business activity along two distinct and complementary dimensions: the rate of business owners in the economy, which is the percentage of adults owning a business in a given month – and established small business density, the ratio of established small employer businesses to the person population in the economy.
“The combination of these two distinct components provide a unique and important view of small business activity in the country, across national, state and metropolitan-area levels,” said E.J. Reedy, director in Research and Policy at the Kauffman Foundation.
“This is the first time that a snapshot of this kind has been taken of America’s Main Street businesses,” said Arnobio Morelix, senior analyst in Research and Policy at the Kauffman Foundation. “Small businesses and their owners play an important role in the U.S. economy, with these main street businesses making up 63 of all employer firms. As such, understanding these trends offer substantial policy implications.”
The report finds that the recent increases in Main Street business activity as measured by the Index were driven by the increase in established small firm density. While the rate of small business owners in the United States has remained virtually unchanged in the past year (increasing from 5.98 percent in 2014 to 6 percent in 2015), the density of small businesses in the country has risen to an all-time high with 1,006.6 companies per 100,000 people – or 3.16 million businesses, which is higher than pre-recession levels. A major driver of the uptick is the increase in micro-enterprises – businesses operating for more than five years with fewer than 10 employees – which grew by 3.6 percent from the 2014 to 2015 Index, compared to the 1.2 percent growth from all other established small businesses.
“We should all take note,” wrote Maria Contreras-Sweet, administrator of the U.S. Small Business Administration, in the report’s Foreword. “The data presented here are essential to effective policymaking at every level of government.”
Despite the increase in activity in 2014, the long-term trends for small business ownership in the United States are not encouraging. Since 1996, the rate of small business owners has declined significantly, from 7.8 percent to 6.0 percent, and the density of small businesses has also plateaued since the mid-2000s.
“Although there has been an overall decline in business ownership, many subgroups of the population are doing quite well in business ownership,” said Rob Fairlie, professor and chair of economics at the University of California, Santa Cruz, and one of the study’s authors.
The Index also provides a detailed look at the demographics of established small business owners, finding that men are more than twice as likely as women to own a small business (8.2 percent compared to 3.9 percent). Immigrants now comprise more than 20 percent of all small business owners, the highest rate yet. Small business owners are becoming increasingly ethnically diverse, with 28 percent of business owners being African American, Latino or Asian and other non-white business owners. In addition, college graduates are the biggest educational category of U.S. small business owners, with the share increasing from 34 percent in the 1997 Index to 39 percent in the 2015 Index.
Additional reports that provide a more in-depth analysis of the state-level and metropolitan area trends in small business activity will be released December 10.
For the full reports and interactive data, visit www.kauffmanindex.org.
About the Kauffman Index of Entrepreneurship Series
The Kauffman Index of Entrepreneurship series – the umbrella initiative for all Kauffman Index reports – studies and analyzes entrepreneurship from various perspectives. The series includes the Kauffman Index: Startup Activity, which analyzes the beginnings of entrepreneurship, focusing on new business creation, market opportunity and startup density. The Kauffman Index: Main Street Entrepreneurship, attempts to understand prevalence of local small business. All of the reports provide comprehensive analysis at the national and state and local levels as well as demographic breakdowns.
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