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Why is Entrepreneurial Activity Going Down if Job Creation is Up?

Izzy Santa, Director, Policy Communications, Consumer Technology Association (CTA)

August is Startup Month, during which we thank entrepreneurs across the U.S.  for creating new ideas, jobs and opportunities.

But today, American entrepreneurship is on the decline, despite job creation bouncing back across the country. For evidence supporting both the good and bad news, look no further than the Consumer Technology Association (CTA)™ Innovation Scorecard, an annual ranking of innovation-friendly policies.

According to the latest data from the U.S. Census Bureau, a majority of states experienced job growth when comparing the periods of 2009-2013 and 2010-2014. Twenty-four states even posted double-digit job gains. Arkansas led the country in the percentage of net jobs created, experiencing a 62 percent increase. And only three states had net job losses: Louisiana, Iowa and Arizona.

But when you compare the numbers for only startup companies during the same periods, 48 states saw a drop in the number of new small businesses created. Only Maine and Nevada created more net new companies.

Why the phenomenon? There are two common explanations:

  • Startups have a limited talent pool to support their growth; and

  • Burdensome taxes and regulations stifle ideas.

Inc. Magazine offered some insights on the reasons behind the entrepreneurship slow down. Here’s the summary:

  • In contrast to baby boomers, millennials aren’t taking the same risks previous generations did.

  • Established brands battle startups. Example: Dollar Shave Club versus Gillette.

  • Raising capital has become more difficult as venture capitalists are concerned about overvalued companies that haven’t gone public. 

To find out how your state is doing with entrepreneurship activity, check out the Innovation Scorecard map, where you can see the latest stats.