U.S. Business Ownership Drops



Business Ownership Drops

The share of American families that owns a business dropped significantly between 2010 and 2013, falling to its lowest level since the Federal Reserve first began measuring it in 1989. Between 2010 and 2013 the fraction of U.S. families with business equity declined from 13.3 to 11.7 percent, the Federal Reserve reports (PDF).

The estimates of private business ownership come from the Survey of Consumer Finances (SCF), a periodic effort of the Federal Reserve Board of Governors to gauge the financial situation of U.S. families (defined as financially interdependent members of a household). Administered every three years by NORC, a survey research organization affiliated with the University of Chicago, the SCF queries approximately 6,000 U.S. households on their financial condition. Among the data gathered is information on the ownership of private businesses, which the Fed defines as sole proprietorships, partnerships, S-corporations and non-public C corporations.

Researchers at the Fed found that the decline in ownership of private businesses exceeded the drop in ownership of any other non-financial asset over the past three years. Moreover, the drop in the share of business owning families extends a decline begun three years earlier, when the fraction of households with business equity slid from 13.6 percent in 2007 to 13.3 percent in 2010.

The decline in private business ownership occurred among both higher and lower income households, the Fed’s survey reveals. However, households in the top 10 percent of income experienced the largest fall, dropping from 40.9 percent in 2007 to 35.4 percent in 2013, spreadsheets posted by the central bank’s researchers show.

The typical business-owning household lost money on its entrepreneurial activities over the past three years. The value of the equity holdings of the median business-owning household declined by one-fifth between 2010 and 2013, the Fed’s analysis reveals.

However, the value of business equity at the average business-owning household grew. The Fed’s figures show that the mean value rose from $844,800 in 2010 to $973,900 in 2013 when measured in inflation-adjusted dollars. (Nevertheless, the most recent number remains below its 2007 peak of $1,062,500 [measured in 2013 dollars].)

The increase in the value of business equity held by the average business-owning family was driven by a rise at higher income households. Families in the top ten percent of income saw the average value of their business equity rise, while those in the bottom half of the income distribution saw the value of their business equity decline.

Among the less affluent business-owning households, the decrease in the value of business equity experienced from 2010 to 2013 continues a slide begun in 2007. Among company-owning households in the bottom half of the income distribution, the value of business-equity fell from $248,900 in 2007 to $152,700 in 2013, when measured in 2013 dollars.

Business Owner Photo via Shutterstock

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Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

4 Reactions
  1. First, this shows that it’s hard to be a small business owner. Companies get big or go under it seems. Second, it shows that owning a business is a good investment. However, with rising health care costs I see more and more people latching onto a “good” job with health benefits, foregoing entrepreneurial efforts.

  2. Right. While it can be promising, it also shows that owning a business is not for everyone. And since there are too many people getting into business, it is getting harder and harder to sustain a successful one.

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