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The startup gap

Businesses are born—and die—all the time. What’s needed for a healthy, dynamic economy is more startups than closings.


Unfortunately, in many U.S. metropolitan areas this is not happening. That finding is contained in a new report by the Washington-based Economic Innovation Group.


EIG compared startup rates—the share of businesses in a metro economy that had launched within a given year—and closings. It found that in more than half of 366 U.S. metro areas, business deaths since the recovery from the Great Recession began have exceeded business births.


For the Rochester area, there is some positive news: It is among the minority of regions where the startup rate has exceeded closings. In fact, this area ranks 82nd, or in the top one-quarter, in the difference between business births and deaths.


From 2010 to 2014, the birth rate here averaged 6.7 percent versus a death rate of 6.3 percent. The 0.4 percentage point difference compares favorably with the U.S. average of 0.2.


Nonetheless, for the Rochester-area economy to thrive, it needs more business creation. As the EIG report notes, “new businesses are responsible for nearly all the net new jobs in the U.S. economy. Incumbent companies shed more workers than they hire in most years.”


Nationwide, the report adds, the average age of companies is increasing and “a record 74 percent of the workforce is employed by one of these aging incumbents.”


The EIG data end in 2014. The Kauffman Foundation’s 2016 index of startup activity, released last August, suggests a brighter picture, with new business creation rising for the second straight year. It cites an upswing in “opportunity” entrepreneurship (versus “necessity” startups) and a higher rate of female entrepreneurs. But the index still is shy of the mark it set before the recession hit.


To be sure, there are limits to what local governments can do to boost the startup rate. But this should be a primary focus of economic development efforts.


2/10/2017 (c) 2017 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.


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