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Report: severe decline in new business creation following the Great Recession

Periods of economic recession followed by economic expansion are a familiar pattern in the United States. In recent periods of economic recovery, the country has experienced increases in new jobs and the expansion of new business establishments.

Following the Great Recession, the early 2010s saw these characteristic signs of economic growth and upturn, but a report from Economic Innovation Group shows that the growth during this period was not at the levels seen during previous recoveries.

The report evaluated the United States’ economic growth from 2010-2014 and compared it to the recovery periods that took place in the 1990s (from 1992-1996) and early 2000s (2002-2006).

During the 1992-1996 period, there was a net increase of 420,850 new business establishments (6.7 percent increase). Similarly, the 2000s recovery period saw a net increase of 400,390 new establishments (5.6 percent increase). During the 2010s, however, the number of newly created businesses dropped significantly to only 166,460 (a 2.3 percent increase).

According to the report, not only did the overall national rate of new business creation fall, but geographic disparities in business creation became more pronounced across the country.

During the 2010s, only a quarter of U.S. counties added new businesses at a rate that matched the national 2.3 percent growth rate. In fact, 59 percent of counties saw more businesses close than open during this recovery period. By comparison, in the 90s recovery period, only 17 percent of counties saw net negative establishment growth.

The Economic Innovation Group reports that this pattern can have long lasting effects on local economies.

“The geographically uneven nature of the collapse in startups implies that wide swathes of the country will soon be contending with the consequences of a missing generation of enterprise.

Many communities will see fewer employment opportunities as a result, and depressed entrepreneurship will leave their local economies more vulnerable to the downsides of inevitable economic shifts to come.”

The study also reports that 20 counties alone generated half of the United States’ new business establishments in the 2010s. LA County ranked first in new establishments, with more than double the growth of the 2nd ranked county. No Washington State counties were included in that list. During previous recovery periods, King, Snohomish, Spokane, Pierce, and Clark counties were included in the top counties contributing to half of the country’s new establishment growth. But with growth becoming more geographically consolidated, they disappear off of the map.

The report also finds that job growth is more geographically concentrated than in in the 90s and 2000s recovery periods. From 2010-2014 the U.S added 9.1 million new jobs. However, during this time period 31 percent of counties still recorded overall job loss, an increase from previous years.

The majority of counties in Washington enjoyed job growth during this period, but counties on the peninsula and in the northeastern corner of the state reported job loss.

Only 28 percent of U.S. counties saw faster job growth than the national rate, and only 12 states had a majority of residents living in counties with job growth at the national rate. In Washington, 49 percent of the population lived in these higher job growth counties.

Also, 50 percent of the job growth across the country took place in just 2 percent (73) of the counties in the United States. King County was included in this top 2 percent with an increase of 97,600 new jobs and a 9.8 percent employment growth rate. Snohomish County was also in the top 2 percent.

 “Together, the findings capture an economy veering towards a less broadly dynamic, less entrepreneurial, and more geographically concentrated equilibrium – more reliant than ever on a few high-performing geographies abundant in talent and capital to carry national rates of growth,” states the report.

“These findings suggest that the gains from growth have and will continue to consolidate in the largest and most dynamic counties and leave other areas searching for their place in the emerging economic landscape. While many will benefit, the new map also calls for a new toolkit for ensuring broad access to opportunity and helping both people and places realize their economic potential.”