Sunday, December 2, 2012

Startups and the Great Recession

...and by "startups" I just mean new firms (I know some people prefer a narrower definition). Anyhow, here are some charts I made from BDS data (click for larger images).

Figure 1
Figure 1 plots the number of new firms by year since 1980; these are administrative data observed in March, so the 2010 observation tells you how many firms existed in March 2010 that did not exist in March 2009. As you can see, there was a staggering decline in startups prior to and during the Great Recession.

Figure 2
Figure 2 plots the number of startups as a percent of the total number of firms in the (private nonfarm) economy, showing that startups didn't just take a beating in absolute terms. That declining secular trend is also noteworthy.

Figure 3
Figure 3 plots jobs created by startups. Again, a pretty epic decline prior to the Great Recession.

Figure 4
Figure 4 plots the component of the overall job creation rate (using the DHS definition) accounted for by startups [edit: the figure is mislabeled]. So the overall story is that new firm creation and job flows therefrom were decimated in the years leading up to the Great Recession, both in absolute and relative terms. Some of this may be explained by the Moscarini model, but I think there may be other things going on as well (such as housing collateral).