Are Younger Americans Losing Interest in Entrepreneurship?

Recent studies suggest that young Americans are less interested in entrepreneurship than their parents’ generation was 25 years ago. While no one really knows why, some data suggest declining risk tolerance could be part of the explanation.

Business ownership by young people has declined substantially over the past two decades. Data from the Federal Reserve’s Survey of Consumer Finances – an every three-year investigation of the financial state of U.S. households conducted on behalf of the monetary authority by the University of Chicago – shows that 10.6 percent of households headed by a person under 30 owned a private business in 1989, but only 3.6 percent of that age group had a company in 2013.

Bureau of Labor Statistics (BLS) numbers show a similar decline. The self-employment rate for people between the ages of 20 and 24 fell 23.1 percent between 1989 and 2013, while the self-employment rate for people 25 to 34 dropped 24.3 percent over the same period. By contrast, the self-employment rate for people between 45 and 54 declined only 16.1 percent, and it went down only 15.1 percent for those aged 55 to 64, and 16.2 percent for those over the age of 65 over the same period.

Many factors could account for the decline in entrepreneurial activity among young people, from a rising regulatory burden on business owners, to greater difficulty accessing capital, to declining savings, to the rising cost of employing others. But some observers have honed in on a change in attitudes. Young people, they say, are less interested in running their own businesses today than they were two decades ago.

Data from UCLA’s Cooperative Institutional Research Program (CIRP) at the Higher Education Research Institute provides partial support for this view. The survey of incoming college students shows that the fraction that reports that “becoming successful in a business of my own” was “essential” or “very important” to them slipped from 45.1 percent in 1989 to 41.2 percent in 2013.

Moreover, reports of the students’ intended profession follows a similar pattern. In 1989, 3.4 percent of students told surveyors from CIRP that they planned to become entrepreneurs or business owners. In 2013, only 2.4 percent did.

A greater reluctance to take on the risk of business ownership may be behind this decline. While we don’t have data on that topic from the late 1980s, we do have it going back to 2001. And the information for the past decade supports the idea that young people have lower tolerance for the risk of entrepreneurship today than they did 12 years ago. The 2013 Global Entrepreneurship Monitor, an annual survey of a representative sample of American adults, reveals that 36 percent of Americans between the ages of 25 and 34 who had identified a new business opportunity said they would not start a company because of a fear of business failure. That’s a significant rise from the 23.9 percent who felt that way in 2001.

Moreover, the percentage of young Americans who told the interviewers in 2013 that they were deterred by a fear of failure from starting a business was much higher than the percent of Americans aged 55 to 64 (26 percent) who indicated the same fear.

While we have only partial data on the topic of younger Americans’ interest in entrepreneurship, what information we have reveals a troubling pattern. Fewer young people today run their own companies than did so 24 years ago. A smaller fraction of them is interested in becoming entrepreneurs and a larger slice is afraid of failing at business creation.

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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.