Startups Are Key to Economic Growth, AB 77 Might Help

Good Governance Policymakers

| October 1, 2024

Nevada Assembly Speaker Steve Yeager recently penned a column in the Las Vegas Review-Journal extolling the virtues of the so-called Right to Start Act that he sponsored during the 2023 legislative session and which was signed into law by Gov. Joe Lombardo. Yeager says:

Entrepreneurship is key, because young businesses create virtually all job growth in America. It enables individuals to pursue their dreams by starting their own business and to build wealth as a company grows. Entrepreneurship also benefits everyone, as research in the United States shows that for every 1 percent increase in the entrepreneurship rate, the poverty rate decreases by 2 percent.

This sentiment is correct, and there’s a wealth of data to support it. Although startup businesses account for a minority of overall employment, startups account for nearly all job growth from year to year. More fundamentally, the act of entrepreneurship is the ultimate expression of the American Dream, as it empowers individuals to bring their creativity to life, carve their own path, and potentially generate new wealth for themselves and those around them. Entrepreneurship is the true engine of socioeconomic mobility that engenders hope for a better future within Western liberal societies.

Nationally, there would be no net job growth this century without startups. According to data from the U.S. Bureau of Labor Statistics (BLS), firms in their first year of existence have generated 80.0 million jobs since 2000. Among established firms, some expand and others contract in any given year, but firms older than one year are responsible for a cumulative net loss of 55.6 million jobs since 2000. In other words, startups offset job losses in older firms as some shrink or close. On net, have created all new job opportunities in the United States over the entire timeframe for which the BLS has data.

Chart 1 shows net job growth by age of firm. It shows firms less than one year old have consistently created millions of new jobs every year. Meanwhile, firms between one and four years old have shed a net 5.6 million jobs this century and firms between five and nine years old have shed 9.5 million jobs. Firms older than 10 years shed 40.5 million jobs on net.

This trend holds true looking specifically at Nevada. Although Nevada has been a fast-growing state in the 21st century to which many Americans have relocated, established firms have still shed jobs on net. Between 2000 and 2023, established firms shed a cumulative 351,985 net jobs in Nevada. Over the same time, however, startups generated 841,035 new jobs—far more than offsetting the net losses in established firms.

Chart 2 breaks this data down by age of firm. It shows Nevada firms between one and four years old have generated 53,271 net new jobs since 2000, while firms between four and nine years old have shed 62,737 net jobs. Firms older than 10 years have shed 342,519 jobs, on net.

These data make clear that Western liberal societies are reliant on entrepreneurs not only for their own sustenance, but because new business formations create the bulk of new employment opportunities for everyone. However, in a very concerning trend, the rate of entrepreneurship has slowed significantly this century. Monthly business formations nationwide gradually declined from a peak of 38,996 in October 2005 to 21,602 in December 2020, according to Federal Reserve data—a drop of 44.6%. Nevada has been no exception to this slowing rate of entrepreneurship. Federal Reserve data similarly shows monthly business starts in the Silver State declined from a high of 455 in October 2005 to 298 by December 2020—a drop of 36.5%.

Federal Reserve analysts have fretted that “the prevalence of startups in the U.S. economy has been falling over the past four decades.” Declining entrepreneurship is also prevalent in statistics showing the overall share of employment has become increasingly concentrated in older firms because fewer startups are being launched to generate new and different opportunities. The result is a stagnating and less dynamic labor market. The U.S. Census Bureau has modeled this rising share of employment in older firms, which is reproduced below.

So, what can be done to turn around the alarming decline in American entrepreneurship?

There is likely no shortcut—it’s a long-simmering problem that requires a long-term solution. Young Americans need to be educated about the value and social importance of entrepreneurship so they can aspire to become leaders. Moreover, they must endowed with the skills necessary to become successful in launching new businesses, including a greater focus on accounting, engineering, and similar trades. Concerningly, teacher surveys suggest students are spending increasingly less time learning science while the number of college graduates majoring in accounting fell 16.9% between 2013 and 2022.

Yeager’s bill at least attempts to reinfuse a culture of entrepreneurship into the social structure by creating an Office of Entrepreneurship within the Governor’s Office of Economic Development (GOED). Nevada Policy has long argued that GOED should focus on removing barriers to entrepreneurship rather than providing taxpayer subsidies to established firms with political influence. The office is charged with working to strengthen the “policies and programs supporting the growth of entrepreneurship” in Nevada, enhancing the skills of entrepreneurs, and helping entrepreneurs to navigate the regulatory apparatus.

The intent behind the bill is laudable. To be successful, however, the spirit of entrepreneurship needs to be inculcated across all state agencies and, especially, in the classroom and the workplace.

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Geoffrey Lawrence

Geoffrey Lawrence is director of research at Nevada Policy. Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission. Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association. From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society. Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics. He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation. Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke. He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.