American Markets Need More Competition, More New Businesses

Some of the crucial ingredients of broadly shared prosperity in the U.S. economy include a dynamic market where new ideas can thrive, new businesses can reshape the economic landscape, and vigorous competition allocates resources efficiently.

Our collective imagination of the U.S. economy is often one of bold entrepreneurs reshaping the world. TV shows us a Shark Tank with an unending stream of plucky new businesses, and media depictions of Silicon Valley display a rapidly changing landscape of new firms disrupting everything they encounter. Against this backdrop it can be both surprising and incongruous to hear that by many measures the dynamism of the U.S. economy is declining and concentration is growing. In fact, the overall start-up rate in the U.S. has been declining for decades. Consider these alarming statistics.

* In 1979, between 11 percent and 18 percent of firms were new in any given industry; by 2014 only 4 percent to 9 percent were. This decline occurred even in high-tech.

* Firms aged 10 and younger employ a considerably smaller share of the labor force (19 percent) than they did a few decades ago (33 percent).This is due both to the declining share of new firms and their declining size relative to older firms.

* College-educated workers are much less likely to be entrepreneurs than they previously were.

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