Dane and I have a policy brief out today that looks at a few possible scenarios of job creation that could result from a startup visa (paper is here; press release summary is here). The Startup Act 3.0 bill proposes to create 75,000 visas for immigrant entrepreneurs who found companies. We estimate this could result in, at a minimum, somewhere between 500,000 and 1.6 million jobs created after 10 years. The legislation calls for 75,000 visas to be active at any given time, meaning that 75,000 visas could be filled and then no new visas would be issued until one of those slots opened (presumably because a startup failed or the startup graduates from the visa program). Employment projections would be much larger if the pool was expanded or if visas were allocated annually. More details and caveats about how we constructed the scenarios are available in the paper.
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Economic Growth
February 27, 2013
February 18, 2013
The Business Cycle and the Climate for Enterprise II: Japanese Growth in the Aftermath of Its Financial Crisis of the Early 1990s
I continue to worry about (and worry) the issue of what the experience of the past generation tells us about the relationship between short-run cyclical economic downturns and long-run enterprise, entrepreneurship, and growth...
From the end of World War II until the beginning of the 1990s, it looked as though the Japanese economy was "converging" to the American economy in living standards and productivity levels--that although Japan started the post-World War II period with a labor force inferior in education, with a lower level of installed technology, and with a capital stock deeply depleted by the fact that Curtis LeMay's bombers had made the rubble of Japan bounce, that eventually Japan's economy would "catch up" to that of the United States.
February 14, 2013
Gloomy Thoughts About the Effects of the Cyclical Downturn on Entrepreneurship, Enterprise, and Growth
I have been staring at a very gloomy graph--at the Congressional Budget Office's forecasts of "potential output", of what the economy can produce without starting to "overheat" and putting upward pressure on inflation:
Looking at this graph tells me that:
- Real GDP fell relative to potential output by 8% in 2008-2009…
- Real has stayed 8% below its previous growth path ever since…
- The CBO is now forecasting that real GDP will return to potential output as of the end of 2017…
- The CBO is now forecasting that, come the end of 2017, the economy's full-employment productive potential will be 8% below what CBO was forecasting in 2007…
October 29, 2012
The "Entrepreneur Subculture"
Noah Smith wrote a post over the weekend where he expresses concerns over what he terms the Entrepreneur Subculture:
Well, in the past few years, I've been reading - and hearing - a lot about the Entrepreneurship Subculture. You all know what this is. It's mostly young people, mostly in urban areas (especially SF and NYC). It's mostly (but not exclusively) made up of entrepreneurs in the fields of technology and media. It includes media outlets like TechCrunch, books like The Lean Startup, "incubators" like YCombinator, forums like Quora, and other outlets like the TED and TEDx talks.
First, I'd like to address this above description Smith offers before I talk about his concerns.
Smith qualifies by using the word "mostly" three times, but this still to me looks like he's talking about the idea that the average entrepreneur is a twenty something, in Silicon Valley, and working on an internet startup.
Even if this is not what Smith intends to convey, this is a common perception. And it is simply not true. As we have covered here before on Growthology, entrepreneurs are not, on average, young, and we've talked about how they are not mostly located in San Francisco and New York City, and do not work only on tech and media (see our Inc. 500 research here). Concerning geography, here is the map of the Inc. 500 firms over time (an interactive version is available at the previous link):
And here is a relevant excerpt with statistics on the industry question (from this paper in the Inc. series):
At the nationwide level, only a quarter of Inc. firms are in conventional high-tech sectors, such as IT and Health and Drugs, and the industrial sector distribution is extremely wide, including Business Services (10.2 percent), Advertising and Marketing (8.6 percent), Government Services (7.3 percent), Construction (3.8 percent), and the rest. At the metropolitan level, we observed regional variations and specializations. Government Services in Washington, D.C., was the best example; other cases include Advertising and Marketing in New York City and Los Angeles, Business Services in Chicago and Atlanta, and Health and Drug firms in Dallas.
I note discussion in another part of Smith's post and in the comments about the relevance of venture capital--we've covered that here too, many times, and it bears repeating, most entrepreneurs never receive venture capital (or angel) investment.
Returning to Smith's main message--he asks if we have an entrepreneurship groupthink problem. Dane has wondered about this previously as well. Does the Entrepreneur Subculture insulate? If policy makers and the media focus on entrepreneurs, and if entrepreneurs are more and more in close collaboration with one another, will the same ideas end up being recirculated and groundbreaking innovations become even more rare? The potential for problems is definitely there.
I think Smith is right on the mark when he advises that entrepreneurs should take breaks from this Subculture experience. I have an illustrative story that squares directly with this idea. I attended the Inc. 500|5000 annual conference in Phoenix earlier this month. One of the presentations was from GoPro (the durable, hi-def, and compact camera) founder Nick Woodman, who came up with the two big innovations for GoPro while pursuing his passions. He came up with the idea for the first camera (not able to record video at first) when he thought about capturing his experiences on a surfing tour vacation--the first GoPro was a camera you strapped to your wrist. Later after the company had developed rudimentary video cameras, he was learning to drive a race car and realized that a camera that could be strapped to your wrist could just as easily be mounted to a roll bar. Take a break; discover big ideas while having fun.
Aside from vacations, there are ways to take quick breaks too. There's a popular concept in computer programming concerning rubber ducks. When troubleshooting code, put a rubber duck next to your keyboard and force yourself to explain the problem to the rubber duck. Talking it out to an uniformed thing is helpful. Entrepreneurs might find rubber ducks helpful too as a quick break. But more generally I'm thinking about real life rubber ducks. Rid yourself of the name dropping, the "do you know/have you heard of __ ?" question banks, and forget all the acronyms by talking and explaining things to non-entrepreneurs (I include myself in this camp), and frequently don't talk about entrepreneurship at all. Talk about e.g. the unfathomably good Homeland.
It will also be up to us--organizations like the Kauffman Foundation and others that support entrepreneurs--to speak up, present research-backed evidence, and provide feedback surrounding policies and practices concerning entrepreneurship. Maybe we should start handing out rubber ducks and be sure to use them in our own work.
October 18, 2012
October 11, 2012
High-Skill Immigration: A Resource (Part 1)
Earlier this week in his post on Forbes.com Adam Ozimek challenged bloggers and economists to write more on the subject of high-skill immigration as an economic policy lever. Ozimek is frustrated because this is an issue of extreme importance and urgency on a national scale (we agree), but it doesn’t get blogged about much because it’s really not that controversial. Most people are of the opinion that allowing more highly skilled and highly educated immigrants to stay in the United States is a good thing, but national policies on the matter have yet to change.
To add fuel to the blogging fire and to provide something of practical use for Practically Friday, I present you with a wealth of research on the topic. This is part one of two posts: the first is specifically Kauffman-funded research and resources, the second will be outside research and resources.
The Kauffman Foundation has funded a great deal of research regarding immigrant entrepreneurs since 2007, primarily written by Vivek Wadhwa and company. The latest report, America’s New Immigrant Entrepreneurs: Then and Now, is Part VII in Wadhwa’s Immigration and the American Economy series, which examines “the economic contributions of skilled legal immigrants in the United States, what is different about them, what obstacles they face with the U.S. immigration system and why tens of thousands of skilled immigrants and would-be immigrants are heading back to their home countries and what the implications are for the United States.”
Tom Brokaw highlighted some of Wadhwa et al.’s research for NBC Nightly News in 2011 as a part of its “America at the Crossroads” series, interviewing some of these young foreign entrepreneurs, most of who will be forced to return to their home countries once their temporary visas expire, taking the jobs they created with them.
You can check out the entire research paper series through the links below:
Other entrepreneurship and immigration research from the Foundation includes:
And that, as Ozimek points out, is absolutely worth blogging about. As he puts it, “It’s the most important economic issue of our time, far more important than tax reform, and it is a lever that could help improve a lot of problems we have in this country. We should be shouting this from the rooftops daily.”
To add fuel to the blogging fire and to provide something of practical use for Practically Friday, I present you with a wealth of research on the topic. This is part one of two posts: the first is specifically Kauffman-funded research and resources, the second will be outside research and resources.
The Kauffman Foundation has funded a great deal of research regarding immigrant entrepreneurs since 2007, primarily written by Vivek Wadhwa and company. The latest report, America’s New Immigrant Entrepreneurs: Then and Now, is Part VII in Wadhwa’s Immigration and the American Economy series, which examines “the economic contributions of skilled legal immigrants in the United States, what is different about them, what obstacles they face with the U.S. immigration system and why tens of thousands of skilled immigrants and would-be immigrants are heading back to their home countries and what the implications are for the United States.”
Tom Brokaw highlighted some of Wadhwa et al.’s research for NBC Nightly News in 2011 as a part of its “America at the Crossroads” series, interviewing some of these young foreign entrepreneurs, most of who will be forced to return to their home countries once their temporary visas expire, taking the jobs they created with them.
You can check out the entire research paper series through the links below:
- Part I: America’s New Immigrant Entrepreneurs
- Part II: Education, Entrepreneurship and Immigration
- Part III: Intellectual Property, the Immigration Backlog, and a Reverse Brain-Drain
- Part IV: America’s Loss is the World’s Gain
- Part V: Losing the World’s Best and Brightest
- Part VI: The Grass is Indeed Greener in India and China for Returnee Entrepreneurs
- Part VII: America’s New Immigrant Entrepreneurs: Then and Now
Other entrepreneurship and immigration research from the Foundation includes:
-
The Kauffman-designed Startup Act, which gave rise to the Startup Act 2.0 (S. 3217 and H.R. 5893), currently being sponsored by Senators Marco Rubio (R-Fla.), Chris Coons (D-Del.), Jerry Moran (R-Kan.), and Mark Warner (D-Va.). The bill includes language to create new visas for immigrant entrepreneurs (Sections 3, 4, and 5).
-
Reforming Immigration Law to Allow More Foreign Student Entrepreneurs to Launch Job-Creating Ventures in the United States by Anthony Luppino, John Norton, and Malika Simmons outlines specific measures to modify immigration law in the United States to attract and encourage talented international students to start job-creating businesses in the U.S.
-
A chapter in Better Capitalism: Renewing the Entrepreneurial Strength of the American Economy by Robert E. Litan and Carl J. Schramm entitled “Importing Entrepreneurs” discussing immigration policy regarding highly skilled entrepreneurs. “Welcoming and even recruiting skilled immigrants, especially those wanting to launch a business in the United States, can be – and is – both good economics and good politics.”
-
Two Kauffman-funded policy briefs by the National Foundation for American Policy:
- Keeping Talent in America argues that international STEM graduates (science, technology, engineering, or math) from advanced universities should be handed a green card along with their diplomas to encourage them to stay in the United States and start a business.
- Still Waiting: Green Card Problems Persist for High Skill Immigrants points out that the increased wait times for highly-skilled immigrant entrepreneurs to get green cards (up to 70 years!) is a threat that could “deprive the country of talented individuals who will choose to develop innovations, make their careers and raise their families in other nations” and offers solutions to remedy the backlog.
-
A Fordham Urban Law Journal article, “Making the Case for Changing U.S. Policy Regarding Highly Skilled Immigrants,” by John E. Tyler and Peter H. Schuck, that highlights the importance of highly skilled immigrant entrepreneurs to the economy, stating that these entrepreneurs in STEM fields “have disproportionately catalyzed and expanded U.S. innovation, jobs, wealth creation and resulting advances in human welfare.” A version of this article was also a chapter in the Kauffman Foundation book Rules for Growth (chapter 4).
- Knowledge Economy Immigration: A Priority for U.S. Growth Policy by Robert E. Litan and Tim Kane, states that the “single most important policy reform that will boost long term growth in the United States is to reduce the barriers facing highly skilled and highly educated immigrants. At least 50,000 workers with advanced degrees are sent out of the United States each year, although they have already passed security tests and become part of the productive fabric of the U.S. economy. In a world where the knowledge economy adds more value to national incomes than physical labor, the current U.S. stance of exiling many of the smartest people in the world imposes self-inflicted wounds on our currently troubled economy.” [emphasis mine]
-
The Budgetary Effects of High-Skilled Immigration Reform by Arlene Holen at the Technology Policy Institute. Through a grant from the Kauffman Foundation, Holen examined the fiscal effects of immigrant entrepreneurs and concluded that “legislation considered by Congress during the last few years to loosen green card and H-1B caps could reduce the federal deficit on the order of $100 billion over ten years.” [emphasis mine]
-
America’s Great Job Creators: Immigrant Entrepreneurs – a Kauffman-produced video featuring entrepreneurs from India, Russia, Korea, and other countries about the potential benefits from increasing the number of green cards so that foreign entrepreneurs can start businesses and create jobs in the U.S.
And that, as Ozimek points out, is absolutely worth blogging about. As he puts it, “It’s the most important economic issue of our time, far more important than tax reform, and it is a lever that could help improve a lot of problems we have in this country. We should be shouting this from the rooftops daily.”
September 25, 2012
August 13, 2012
April 27, 2012
February 29, 2012
February 15, 2012
February 25, 2011
February 18, 2011
January 27, 2011
December 15, 2010
June 30, 2010
April 21, 2010
April 13, 2010
The Accumulation of Firms and the Predominance of New and Young Companies
This is a sequel to last week's post about moving from Paul's drunkard's walk to the accumulation of firms over time. Basically, the message of those two posts is that the internal dynamics of the American economy--lots of new companies founded each year, the exit of firms at all ages, the persistent predominance of young firms as the economy moves through time--make it highly probable that job creation will come from new and young companies rather than older, more established companies. (In these data that we're using, a firm is no longer classified as "young" once it reaches age 6, so the term "older," perhaps imprecisely, includes firms ages 6 and up.) Thus, when we say that new and young firms account for most net job creation in the U.S. economy, we are partly describing the reality of these firm dynamics.
This doesn't diminish the importance of these companies or the jobs they create. After all, the reality of these dynamics is premised on four things: a more or less steady inflow of startups; more or less consistent survival rates from year to year; comparable gross job creation and gross job destruction in older companies; and a higher number of jobs created at young firms (4 versus 1). These are not functions of what might be perceived as mathematical inevitability--they are the reasons behind the mathematical probabilities we are describing. If the level of firm formation were more volatile, if older companies created more jobs than they destroyed, if young firms were somehow suppressed in their hiring (through, perhaps, bailouts of larger, older companies; just speculating here)--if these variables changed, the dynamics of firm age through time, and subsequent job creation, would be different.
But, in recent history, these variables have all held and together they have created a picture that does, in fact, resemble something like mathematical inevitability, but which is probably more accurately described as a likelihood, or something of higher probability. In any given year over the past three decades, young firms (startups [age 0] and firms ages 1-5) have constituted the largest demographic of firms in the United States. Starting an economy at t=0, going out 25 years, the influx of new firms and the survival rates of firms over time generate this outcome. And, we might expect (provided the other variables are true) that the largest demographic sector will create the largest number of new jobs. This says nothing, of course, of innovation or productivity, subjects for another day.
Here, I want to supplement last week's post, which used average figures calculated from the Business Dynamics Statistics data, with the actual numbers from that dataset, which covers 1977-2005. That is, did reality conform to the stylized numbers we used last week? (The charts will not follow precisely the same format because last week's charts extrapolated out beyond 5 years on an annual basis, while the actual data aggregates firms into 5-year age categories after the fifth year: 6-10, 11-15, and so on.) We'll start, first, with the U.S. economy starting de novo in 1977, with only firms that came into existence that year. How, over the next 28 years, did the composition of firms by age change?
Here, startups (age 0, new firms founded each year) are broken out separately while all other firms are combined into 5-year categories. The data generally track the accumulation pattern revealed in last week's post: in any given year, young firms (ages 1-5) will quite naturally comprise the largest sector in terms of firm demographics. Note how few firms in 2005 are included in the 26-28 age category--these firms were founded in 1977-1979. By 2005, 19% of the firms founded in these three years remained. That may be more than expected, but using the survival line for firms founded for 1977 we can trace a slowly declining line of survival out two decades. If we imagine that the line continues on that downward slope for the next two decades, it appears as if very few firms in the economy survive more than four decades. Either those firms we all delight in describing as "dinosaurs" should properly be seen as remarkable achievements, or firm failure (over time) is a much more dominant force in the economy than we perhaps imagined. Probably both, and I'm probably simplifying here.
The advantage of using the real data from BDS is that we can include the "left censored" firms in our calculations, those companies founded prior to 1977 but for which we don't have age information. In 1977, then, these firms could be anywhere from age 1 to age 100. But we can track their survival after 1977 against all firms founded after that year. How long do these companies persist?
I included a brief explanation within the chart itself, but you can clearly see how these pre-1977 firms gradually decline in number over time, while new and young firms in any given year gradually get bigger in comparison. By 1988 (the circle), the pre-1977 firm group has shrunk such that it is now smaller each subsequent year compared to cohorts of new and young companies. By 2005, these firms still number 1.5 million, accounting for about one-fifth of all firms in the economy. This is a lot, but is an aggregate of every year before 1977, so there are probably a good number from the 1970s, a proportionately smaller number from the 1960s, and so on.
Now, we can include these pre-1977 firms in our overall chart of firm demographics over time and compare firms of all ages:
This is actually an incredibly interesting chart, as the text insert fleshes out, but I'll repeat it here so you don't have to open the image itself. It shows two different ways in which firm
composition changes and in which new and young firms consistently account for
the bulk of firms in the economy. In
1977, the t=0 moment here, the economy is composed of a class of startups (age 0) and all other
firms existing that were founded before 1977. As the
economy moves through time, you see four things happen. First, age 0 firms and
age 1-5 firms account for a steady slice. Second, the overall number of firms
accumulates. Third, the pre-1977 firms gradually decline in number. Fourth, post-1977 firms that age through time also
diminish in terms of their numbers as fewer survive in subsequent years. So new
and young firms dominate the economy (numerically) by two mechanisms: gradual
disappearance of older firms and gradual disappearance of firms as they age.
Same thing, different pathways (on this time scale).
Finally, we'll move to the percentage shares of each firm demographic (excluding pre-1977 firms here):
Once we get to a point where we have firms older than age 6 (and remember, the pre-1977 firms account for the missing shares here) in 1983, new and young companies account for between 30 and 40 percent of all firms in the economy. This percentage naturally falls over time, albeit slowly, as the overall number of firms grows, but this demographic of firms nonetheless comprises the largest demographic slice--a plurality, if you will--in each year, and this would persist over time.
So what, if anything, does this all mean? It means that new and young companies account for most new jobs in the economy in part because they are the largest demographic category of companies. It also means that job creation may actually be a secondary story here because this reality is a reflection of underlying dynamics that have been remarkably persistent over the past three decades. The United States has enjoyed a more or less steady level (and rate) of firm formation and survival rates for those firms have also been rather steady. Older companies, moreover, experience roughly equal levels of gross job creation and destruction, meaning their net job creation approaches zero.
It is entirely possible that these are transitory phenomena. As far as I can tell from the desultory data and research on firm formation prior to the 1970s, entrepreneurship (and subsequent survival rates) across the entire twentieth century have been remarkably consistent (I mention this, with an accompanying citation, in a forthcoming paper, so I'm not simply making this up). According to some Census data, for example, the number of new business created each year doubled from the 1940s to the 1990s--yet the country's population also doubled so the per capita rate of firm formation remained steady. Over the past thirty years, moreover, entrepreneurship rates have been remarkably steady, not declining as some have alleged.
Yet we surely can't assume that the dynamics beneath such factors are immutable. The preponderance of research concerning firm demographics in many European countries, for example, holds that firm exit is a much smaller factor and that, consequently, unproductive firms simply continue to exist and new firms are dissuaded from entering. Large companies enjoy favorable policy and so the above charts might look quite different for other countries and clearly indicate that the dynamics can change. Even if part of what the above charts do is describe a mathematical reality, it could be considered progress if policymakers in Washington and elsewhere spoke in terms of this reality rather than giving undue attention to the largest companies in the economy (which, incidentally, often seek regulation as a means of protection from competition from startups). What this all means is that startups and young companies are no less important than we thought before--they are a robust and enduring dimension of the U.S. economy. It would be foolish, however, to assume that this is somehow a natural or permanent state of affairs--policy could easily be made to alter these dynamics for the worse.
April 09, 2010
Lijit Search
Created by:
Links
- Robert Litan's Bloggingheads.tv chat with Will Wilkinson
- Robert Litan's Good Capitalism, Bad Capitalism Google Talk
- Comparison of Private Equity Groups
- Comparison of Venture Capital Groups
- Concise Encyclopedia of Economics
- Entrepreneurship.org
- Good Capitalism, Bad Capitalism
- History of Economic Thought
- Kauffman Foundation
- National Bureau of Economic Research
- RealClearMarkets
Blog Roll
- 4% Growth Project
- Cafe Hayek
- Caplan and Kling
- Carpe Diem
- Donald Marron
- Dynamist Blog
- EconLog | Library of Economics and Liberty
- Economic Principals
- Economist's View
- Freakonomics Blog
- Free exchange | The Economist
- Grasping Reality with Both Hands
- Greg Mankiw
- I, Cringely
- Larry Lessig: lessig.org
- Marginal Revolution
- Market Movers by Felix Salmon
- Marketplace Scratch Pad with Scott Jagow
- Matthew Yglesias
- Mish's Global Economic Trend Analysis
- naked capitalism
- Paul Kedrosky
- Real Time Economics
- Risky Business (U.S. News)
- The Balance Sheet
