A key measure of business formation shows 2010 had the highest rate of activity in 15 years.
That’s the good news. But here are two pieces of bad news. First, many of those new businesses created jobs only for their entrepreneurs, not others.
Second, Philadelphia ranks dead last - again - among the 15 biggest metropolitan areas in terms of entrepreneurial activity. And Pennsylvania didn’t fare much better, surpassing only West Virginia, the state with the most frigid business climate.
The Kauffman Index of Entrepreneurial Activity has been tracking business creation for 15 years. It uses data generated by the federal Bureau of Labor Statistics and the U.S. Census Bureau each month to determine business formation and expresses it as a percentage of 100,000 adults.
For much of that time, the index displayed a remarkable consistency in business formation through recession and expansion. In 1996, 310 of 100,000 U.S. adults created a business each month. That rate dipped to 260 in 2001, but for the next five years was at 290 or 300.
After the recession started in December 2007, the index rose to 320 per 100,000 adults in 2008 and 340 in 2009, when the recession ended in June. Last year, the rate remained at 340, suggesting that America may be more entrepreneurial now than before the recession.
In a report released Monday, the Ewing Marion Kauffman Foundation contrasted the trend in the Kauffman Index with another measurement: the employer establishment birthrate, which concentrates on businesses with employees. From 2007 to 2010, the birthrate of those businesses decreased from 0.13 percent to 0.10 percent, while the broader Kauffman index increased from 0.30 percent to 0.34 percent.
The sector that has historically seen the highest rates of business creation nationwide is construction. Weirdly, that was true again in 2010, even though construction has been one of the hardest-hit sectors during and after the recession.
Construction is a tiny part of the Philadelphia economy, but that can’t be the only reason for the region’s low ranking. In 2010, just 150 of 100,000 people in the region started a business. That was down from 180 in 2009 and 160 in 2008. Our low point was 110 in 2007.
Those are terrible numbers. We’re not talking about striving to create the next Twitter or Facebook. We’re not even creating many handyman sole proprietorships. In three of the last four years, Philadelphia had the lowest entrepreneurial-activity rate. (Seattle was the worst in 2009.)
In contrast, Los Angeles was the epicenter of entrepreneurs with a rate of 620 per 100,000 adults, followed by Houston and Atlanta, each at 580.
The business-creation rate in Pennsylvania was 180 per 100,000 adults - just ahead of West Virginia’s 170 but a galaxy far, far away from California’s 470 and even Louisiana’s 460.
For me, the Kauffman Index never nails what may be going on behind these numbers. For example, it shows that immigrants were more than twice as likely to start businesses in 2010 than “native-born” adults. But such a trend should favor Philadelphia, which the Brookings Institution identified as having the largest immigrant population among its peers by 2006.
So what’s been happening? Are Pennsylvanians not entrepreneurial? Or do its entrepreneurial citizens flee to states and regions that are?