By Steve Matthews and Catarina Saraiva

Even though American politicians like to praise small business as the job-creating machine, research shows that it’s the startups that expand employment. These new entrepreneurs are now back on the rise, according to a report Thursday by Kauffman Foundation, which studies entrepreneurial activity.

The Kauffman Index of Startup Activity, which is an indicator of new business creation, had the biggest increase in 2015 over the past two decades, reflecting an increase in the share of new firms as well as more serious intentions behind the projects.

People in the recession began enterprises often because they lost a job and, for example, would start a consulting gig to put something on a resume while searching for real employment.
Kansas City-based Kauffman tracks why people start businesses, and in 2014, about 80 percent were driven by opportunities as opposed to necessity. That’s back to about the level seen in the decade prior to the recession.

“There is a broader return to normalcy in the economy,” said E.J. Reedy, director of research and policy at Kauffman. “People are following opportunities more. They are slightly less risk averse. During the height of the last recession, the run-up was more in people forced into entrepreneurship.”

The risk-taking has been driven by greater confidence in the economy and job market, which Reedy points out is also reflected in gauges such as the percentage of people who voluntarily leave their jobs. Labor Department figures show that’s also gradually risen since 2009 to near pre-recession levels.

Moreover, household wealth rose to a record $82.9 trillion in the fourth quarter as stock prices rose and housing values recovered. Because most entrepreneurs use their own resources to finance startups, those gains have helped.

The 52-page Kauffman report documented some other notable trends among entrepreneurs.

  • The biggest gains in startups have been among men, who made up 63 percent of new entrepreneurs. Men were hurt relatively more in the recession, because the downturn centered on male-dominated housing construction, finance and manufacturing, Reedy said. So the increase in activity among men represents a recovery of sorts, he said.
  • Immigrants are far more likely to start businesses than native-born Americans. Immigrants started 28.5 percent of businesses, which is more than double the number from 1997, even though they made up just 13 percent of the population in 2000.
  • The U.S. population is aging, and so are startups. The biggest gains have been among older entrepreneurs, with 55- to 64-year-olds making up 26 percent of the enterprises. Younger people have been hampered by student debt and an inability to get resources for businesses.

Source: Bloomberg News
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About the authors: Steve Matthews and Catarina Saraiva are both reporters for Bloomberg News.