Summary of What’s Holding Back Business Formation?

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What’s Holding Back Business Formation? summary
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The long-term health of the American economy may be at risk, as the rate of new businesses created has been considerably slower in the United States than its historical norms. This fact might be a piece of the puzzle explaining sluggish GDP growth since before the Great Recession. Researcher Patrick Kiernan and economist Huiyu Li examine the root inputs of business formation and conclude that policy makers could provide opportunities to engage more robust entrepreneurial energy. getAbstract recommends this compelling report to entrepreneurs, venture capitalists and policy experts.

About the Authors

Patrick Kiernan and Huiyu Li are economists at the Federal Reserve Bank of San Francisco.



To understand why the number of new businesses created per year in the United States has dropped since the late 1980s, economists explore two forces that encourage start-ups: the size and productivity of the workforce. According to the “life cycle of businesses” theory, a larger labor pool logically translates to a higher level of business formation, because more consumers with jobs generate greater demand for products and services, and so more businesses enter the marketplace.

The impact of productivity, however, is not as obvious. Rising productivity can lead...

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