A recent study by the Economic Innovation Group, a think tank that follows new business creation reported that new business formation is at an all time low since 1977 when this metric began to be counted. From 1983 to 1987, there were a net of nearly 500,000 new companies started (new companies minus failed enterprises). By 2010-2014 that number had dropped to just over 100,000 and is expected to continue to decline. Its detailed in their recent report, "Dynamism in Retreat."
Lack of available capital, individuals having fewer financial resources to start businesses, and heavy competition from ever larger competitors were the prime factors of why new business formation is about a fifth of what it was 30+ years ago. Moreover, new business formation is taking part more and more in limited city centers such as New York and San Francisco. Between 1997 and 2012 66% of industries saw significant concentration while the number of companies that were at least 16 years or older rose from 23% to 36% of total corporations for 1992 to 2014, respectively. Between 1992 and 2014 new start ups provided an average of 2.9 million new jobs each year while established firms, 16 years or older, shed and average of 300,000 jobs each year.
New business formation drives hiring and social mobility. As companies grow in size they hire and promote workers. Rising concentration of companies reduces employment as duplicate jobs are cut. Without new business formation those impacted workers have fewer opportunities to redeploy their skills and experience. Moreover, smaller companies are less likely to use resume scanners and useless personality tests that exclude possible talented workers.
If we want to get back to a growing job market we need new business formation to counteract the tendency for older companies to merge and downsize payrolls.
The report estimated that the lack of new business formation caused 924,000 missing new jobs alone in 2014.