The Associated Press May 2, 2012, 10:59PM ET

Report: Rate of business startups falling

The rate of new business startups fell in 2010 to the lowest point on record, according to an analysis of U.S. Census Bureau data.

Figures released Wednesday indicated that new companies as a percentage of all businesses dropped below 8 percent in 2010, the latest year for which numbers are available.

The rate has been falling since peaking at 13 percent in the 1980s, but the slower rate of new startups accelerated during the recession, said Robert E. Litan, vice president of research at the Kauffman Foundation, which partially funds the gathering of business data.

Litan said the decline in new business formation as a percentage of total firms has consequences for the economy. Without the jobs created by startups, the recession would have been even deeper, he said.

A new study of Census Bureau data found that in 2010, 394,000 startup businesses created 2.3 million jobs at a time when the private sector lost 1.8 million jobs overall.

The report, by two Census Bureau researchers and an economics professor at the University of Maryland, found that young firms -- those five years or younger -- now account for less than 35 percent of all businesses, down from nearly 50 percent in the early 1980s. And while they created more than 40 percent of new jobs in the 1980s, that has fallen to about 30 percent, they said.

The average size of new business was largely unchanged at fewer than 10 workers, the researchers found.

The decline was in the rate of startups as a percentage of all businesses was seen in all states, although it was deeper in some. The report did not analyze the causes of the differences among state rates but suggested that the declines were greater in states that had seen the most new-business creation in the 1980s -- mostly in the West, Southwest and South, which were hit hardest by the recession.


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