Reference no: EM132965421

The United States has long been seen as the home of a vibrant entrepreneurial economy, but the statistics call this into question. From 1977 to 2011, the number of new start-up firms in the United States declined by 28 percent. More dramatically, relative to the size of the working population, the number of new start-ups has fallen by half. Even Silicon Valley has seen the rate of new business start-ups decline by 50 percent over the last three decades. Entrepreneurial actions have fallen most sharply among younger adults. People age 20 to 34 created only 22.7 percent of all new companies in 2013, down from 34.8 percent in 1996. This is an ironic change given that enrollment in college entrepreneurship programs has been growing. This declining rate of entrepreneurship is setting off warning bells for many. It leads to less innovation in the economy and slower job opportunity growth. Over the long run, it would lead to lower living standards and stagnant economic growth. Concerns on this issue have led to a discussion of the underlying causes of this change. The causes of this decline may be emotional or institutional. On the emotional level, it may be that the after-effects of the Great Recession have tilted society toward risk aversion. Additionally, many would-be entrepreneurs are saddled with significant student loan debt, leaving them less willing to take on the risk of entrepreneurship. Consistent with this view, Audrey Baxter, a woman who won a business proposal award as a student at UCLA, opted to take a corporate job when she graduated rather than pushing her small business forward. '"Having a secure job with a really good salary was something to be considered carefully," Baxter said. It may also be that institutional factors are reducing people's willingness or ability to start a business. Weakened antitrust enforcement may be playing a role. Firms have been able to grow and combine in a range of markets, leading to extremely large competitors that dominate markets, increasing the entry barriers for entrepreneurs. Also, lax antitrust enforcement has made it easier for large incumbent firms to respond very aggressively to newcomers, Increasing the risk for entrepreneurs. Government red tape is another institutional barrier to entrepreneurs. For example, Celeste Kelly opened a business offering horse massage but had to shut down the business when the Arizona State Veterinary Medical Examining Board ordered her to "cease and desist" because it ruled she was practicing veterinary medicine without a license-even though no veterinarians in the area offered horse massage as a treatment. This may seem like an obscure example. but many businesses, including barbers, bartenders, cosmetologists, and even tour guides, are required to obtain licenses. Less than 5 percent of workers required licenses in the 1950s. That number is now 35 percent. According to economists Morris Kleiner and Alan Krueger, licenses increase the wage costs for a business by 18 percent.

1. How concerned are you about the drop in the rate of entrepreneurship?

2. What do you think are the primary causes of the decline?

3. What actions should be taken to increase the rate of new business start-ups? How effective will these actions be?

4. What factors influence your desire to work in an entrepreneurial firm versus an established firm?