Job gains from new firms are at the lowest share of employment in over 20 years, another sign of the declining role entrepreneurship plays in the U.S. economy.
Job gains from opening establishments as a percentage of overall private-sector employment dropped to 1% in the first quarter of 2016, the lowest level recorded since the Labor Department began the data series in 1992, and half what it was at its peak.
Throughout the 1990s, the share hovered between 1.6% and 2%, and edged lower throughout the subsequent decade. Since 2009, when the economic recovery began, it held between 1.1% and 1.3%.
Economists are concerned that the slowing rate of startups signals the economy is growing less competitive, with the largest firms controlling more market share than they did in earlier periods. The White House’s Council of Economic Advisers has argued this leads to outsize returns for certain companies, and has dampened wages for workers, widening inequality.
It’s also a potential drag on productivity. New firms are often at the forefront of technological innovation, the kind that leads to productivity gains as those technologies spread across the economy. But research suggests that new startups are having trouble breaking out to reach their full potential.
Other figures from Wednesday’s Business Employment Dynamics report pointed in the same direction. The number of “establishment births,” or new businesses, fell by 26,000 to 220,000 in the first quarter of 2016. The number of jobs those establishments accounted for also dropped by 161,000 from the previous quarter to 734,000, the lowest level since 2011. The net employment change in the first quarter was a gain of 194,000 jobs, the lowest figure since the first quarter of 2010.
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