New Establishment Birth Rate

The Great Recession knocked the new establishment birth rate – the number of new establishments founded as a percentage of operating establishments – down from its historical average.

Source: Created from Data from the Bureau of Labor Statistics

Since 1993, when the Bureau of Labor Statistics first made the data available, the new establishment birth rate has averaged 3.2 percent of total establishments in operation, as the figure above shows.

Moreover, BLS data reveal that the rate of new establishment formation remained in a fairly tight range of between 3 and 3.5 percent of active establishments from 1993 through 2007. However, in 2008, that pattern abruptly changed. The new establishment birth rate fell below 3 percent, a decline from which it has not yet recovered.

The drop in establishment births results from a decline in the number of establishments being founded, not a change in the number of active establishments. Between 1993 and 2010, the number of quarterly establishment starts averaged 201,000.

In 2008, however, this figure dropped below 200,000 for the first time since 2003, falling to a low of 169,000 in the third quarter of 2009.

The twitter length message here is that the Great Recession led American entrepreneurs to cut new establishment openings from historically stable levels.

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.