Declining Firm Entry and Self-Employment in Small Markets

Abstract

The pace of new firm entry has declined in the United States over the past 30 years. As shown in figure 1, the entry rate, measured as the share of establishments that newly entered in the year, fell from an average of 15.6% in 1978 to 10% in 2000, and to 8.2% in 2019. The declining pace of firm entry has important consequences for employment and economic growth. New establishments are responsible for about one-third of new job creation (Decker et al. 2014). New establishments are also prone to shut down. The survivors are atypically productive, and so a high rate of firm entry and exit is credited with faster productivity growth (Decker et al. 2017). Consequently, slower pace of firm entry is blamed for the slowing of employment and productivity growth since 2000.