CBO Examines Decline in Entrepreneurship Since Early 1980’s

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A new Congressional Budget Office (CBO) report says the rate at which new companies formed or entered the market dropped from 10 percent in 1982 to 8 percent in 2018.

CBO said in the report published Tuesday that new firms operating for less than five years accounted for 29 percent of all businesses in 2018, down from 38 percent in 1982, and that their share of employment fell from 14 percent nearly four decades ago to 9 percent in 2018.

“The decline in new firms’ share of employment was fairly consistent in both the retail and services sectors throughout the period, whereas the share of employment attributed to new businesses in the information and high-tech sectors rose in the 1990s, falling thereafter,” the report reads.

CBO cited economic uncertainty, financing constraints and demographic trends as factors that play a role in causing a decline in entrepreneurship with the regulatory environment showing mixed evidence with regard to its impact on the growth and formation of new firms.

The office suggested a number of federal policies the government can consider to address factors hampering entrepreneurship. These include the possible expansion of the Small Business Administration’s credit programs to provide new companies access to credit, an increase in financial support for new firms and efforts to make regulations less burdensome for such businesses.

“Policymakers could also increase the scrutiny of incumbent firms’ potentially anticompetitive actions directed toward rival start-ups. Finally, concerns about the impact of diminished competition on the formation and growth of new firms could be addressed by restricting the use of noncompete contracts,” the CBO report states.

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