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Number of new companies fell with unemployment

Published: Friday, April 19, 2013 5:30 a.m. CST

NEW YORK – Fewer people are starting small businesses now that the job market is looking better.

The number of companies started in 2012 fell along with the unemployment rate – a sign that people chose new jobs over launching their own companies, according to a study released Wednesday.

The study by the Ewing Marion Kauffman Foundation estimated that there were 514,000 new business owners per month last year, down from 543,000 each month in 2011. In 2010, the peak of the recession and its aftermath, there were 565,000 new business owners each month, the highest amount for the 16 years that the survey has been kept, according to the foundation, which follows trends in entrepreneurship.

“While a stronger economy is good for business growth, it also means the unemployed find jobs instead of starting firms,” said Dane Stangler, director of research for the foundation.

In 2012, the U.S. unemployment rate fell to 7.8 percent in December from 8.3 percent in January.

“During the Great Recession, when the labor market was at its weakest, business creation rates rose to record highs,” he said. “The 2012 rates are a return to longer-term levels.”

The foundation said its Index of Entrepreneurial Activity fell slightly to 0.30 percent from 0.32 percent in 2011. The reading in 2010 was 0.34 percent.

The drop was driven by a significant drop in the number of entrepreneurs among men, which fell to 0.38 percent from 0.42 percent. The number of entrepreneurs among women was unchanged at 0.23 percent.

The youngest age group studied, 20-34, had a large drop in business creation rates, falling to 0.23 percent to 0.27 percent. Younger people have had a higher unemployment rate than the general population during and after the recession.

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