Blog RSS

Discussions of Cuts to Statistical Agencies Taking Concerning Turns

Fri, 11 May 2012 12:46:41 GMT

I've got a new posting on Growthology about the dangerous turn in political discussions about federal statistical agencies which has taken place in the last week. Check it out!

Is it 15 percent or 35?

Fri, 02 Dec 2011 14:30:58 GMT

In this corner we have:

“If you were laid-off, how would you find a job?” [“by starting your own business” being one of the choices]

Coming in as a follow-up question (just in case), we have:

“Would you consider starting your own business if your were to lose your job?”

If you were interested in studying entrepreneurship, which question would you ask? I deal with this all the time but have rarely been given such a perfect example of how question form and timing can impact response. For today’s example, we’ll be drawing from a new poll out from the European Commission.

The European Commission has an ongoing set of public opinion polling surveys that it completes on different topics called the Eurobarometer. This particular poll was looking at household level opinions using a sample of about 26,700. It is topically interesting and of timely importance as it is dealing with employment and social policy in the EU. Given the crisis of confidence that continues to engulf the continent, it is amazing to me how optimistic most of the respondents come across. But I will let readers examine that topic themselves.

I am going to focus on the two questions raised at the top of my post, both trying to get at how people in the EU view starting a business as a hypothetical choice if laid-off. These questions should be seen as a complement to some of the other more in-depth Eurobarometers on this subject. The authors of the survey must have felt strongly on the topic as they asked about the subject in two very different ways.

The first ask of currently employed respondents was: “If you were laid-off, how would you find a job?” Here about 15 percent of respondents who were currently employed reported they would start a business (with or without employees). This comes in near the bottom of options given with predictably high numbers of people applying for a similar job in their same locations (48 percent).

So while respondents were free to choose up to two directions of what they would do if they lost a job, the authors went back to those who had not indicated they would start a business and asked directly: “Would you consider starting your own business if your were to lose your job?” A full 24 percent of those who had not previously indicated they would start a business now include it in their possible reactions to being laid-off. If I am doing my math correctly, this works out to about 20 percent of the overall sample that is currently employed, more than the entire group which chose starting a business in the first question.

So which is it? Fifteen percent or 35 percent (the two added together)? To me, the first question is the more reliable. It gives several choices (including I don’t know) and seems to get more at what people would initially try if laid-off. The second question seems to tease out what people might do if they really had to – the reluctant potential entrepreneurs.

This is a great example of how question format can influence results. By asking the question explicitly and not as a part of a multiple choice response, the rate of possible business start-up if laid-off doubles. This type of choice is made all the time by people designing surveys, but we often don’t know the bias it might introduce. Hopefully in sharing this example others will see (or be able to test) how some of their responses might be influenced by these design issues.

One other thing which is different in this Eurobarometer survey vs. many past is the treatment of starting a business being different from becoming self-employed. These are slightly different concepts and here the European Commission seems to be starting to realize that. That’s a good development for this program and one I hope will spread.

Call for Proposals: IRS Research Program

Mon, 28 Nov 2011 11:47:57 GMT

For established U.S. scholars doing work that requires microdata access to high-quality information, the Internal Revenue Service's Research Program is worth a review. The call for proposals was recently issued with deadline of December 15.

Bruegel Report Highlights Important Need in Policy Debate

Wed, 16 Nov 2011 10:03:36 GMT

We can't understand our economy without better firm-level information systems. That's my essential summary of a new report out today, "Assessing competitiveness: how firm-level data can help," from Brugel, a European think tank. It's a well-crafted and important report as it makes the case for policymakers why the back-end systems are important investments. As the report shows, when we worry about averages and don't look more specifically at elements of the distributions and how those are changing or could be impacted by certain policies, we hurt our chances of driving competitiveness and economic growth.

In the appendix to the report the authors reference some of the international experiences related to firm-level data sets. I think their summary there was restrained in its criticisms. Indeed, I recently sat through a meeting of leading experts on measuring firm-level innovation and growth at the OECD and was appalled at some of the compromises that were going to have to be made in order to fulfill a European Commission mandate for immediate data. It was clear why the compromises had to be made - national statistical offices have not received the investments they need to develop their infrastructures but more importantly they are only just beginning to realize they need to find ways to encourage firm-level research with their data. However, even with the signs of change I've seen afoot in terms of determination from these offices, they have no legal, political, or practical systems in place to meet this challenge. Indeed, at a time when most countries are undergoing significant public sector cuts, I am worried that the clear needs here will not be met with dollars. I've seen many bodies, including the OECD which I had always thought of as the true champion of international analyses using government data moving towards more instances in which their reports rely more heavily on private data sources instead of government data. While private sources should have their place, they cannot be a replacement for official data. That said, if national statistical offices don't get behind some of the important issues Brugel outlined here, I fear that many nations may become more and more satisfied with substandard official statistics. Indeed, some of the current crises in Europe have been driven by lacking regulatory mechanisms on national statistics (see articles on Greece).

Leveling Out?

Mon, 14 Nov 2011 12:03:21 GMT

The OECD has a new version of their timely indicators on entrepreneurship available today at the national level for 10 countries.

These data show that new business formation continues to operate in most countries at the new levels which were reached after the 2008 recession (Australia stands out for its continued positive performance). These are the most timely indicators available internationally and seem to show anemic start-up rates continue in most countries although the rates haven't worsened for the most part.

This release is timed around the start of Global Entrepreneurship Week. I would just note that there is much more data available from the OECD on more complicated and nuanced views of entrepreneurship. Most of that data is current through 2007 or 2008.

Small is Not New, Big is Not Always Better

Tue, 08 Nov 2011 14:32:30 GMT

Check out Bob Litan's piece on MSNBC today Small is Not New, Big is Not Always Better.

How Many Millionaires are Small Business Owners?

Tue, 08 Nov 2011 13:59:06 GMT

The Washington Post has a nice piece online today examining some of the claims and counter-claims about how small business owners would be impacted by tax increases on those earning more than a million dollars. The Post is correct in its suggestion that the more narrow interpretation of the data is the better one. Indeed, it's not surprising that if one is looking at millionaires that the vast majority have some ownership in a business of some sort. When you have that much money you have to park it somewhere to make a return and owning a business seems a natural place (in the given data it's impossible to make attributions about how the millionaires made their money as none of the analysis is really longitudinal). If you aren't looking at where they are also investing their time in running a business then you would be creating a group of people who is dominated by investors and not business operators. While this might be something which is helpful in talking about angel investors, it's probably not a good characterization of the question being posed.

One piece we released last year is relevant to this discussion but has not been picked up by many in the mainstream discussion. Business Owners, Financial Risk, and Wealth uses the Survey of Consumer Finance to examine how business owners appears similar and different to other groups in their wealth and risk preferences. It shows that in most ways business owners (defined even more conservatively than the Post article suggests) are conservative in many of their borrowing and savings patterns but more likely to assume risk for return. The study concludes: "The results suggest that policies aimed at increasing business ownership should focus on helping households identify high-value business opportunities through transparent tax, legal, and regulatory systems. Efforts to reduce risk should focus on the business venture, such as full loss offsets, rather than focusing on reductions in other financial risks." Worth a read for those following this debate.

Small Businesses and Jobs

Mon, 17 Oct 2011 04:40:27 GMT

The Numbers Guy, Carl Bialik, over at the Wall Street Journal has a piece in today's edition looking at some of the claims about small business job creation occurring in the political debate. It is an important topic, and I was glad to see him tackle it. That said, I was disappointed in his treatment of the question. I have a lot of respect for his columns and how he brings focus to important elements of the discussion that involve numbers. With his treatment of small businesses and jobs, he talked to most of the people I would have talked to but ultimately didn't get into any of the depth that I would have expected. Specifically, I don't think he looked at several important elements closely enough for readers:

Small vs. new

I've written about job statistics over the years and most recently focused on them in our Starting Smaller; Staying Smaller piece. And while I haven't jumped directly into the debate about small businesses job creation vs. new business job creation, that seems to be what Carl was starting to do but didn't really. Most of the job creation (and a lot of the destruction) seen when looking at questions about small business job creation comes from small, new businesses. These are businesses which are both very small and also happen to be young but which statisticians historically have not been able to disentagle because the data wasn't stored to look at firm dynamics over time. A lot of what we have worked on these past several years has been trying to bring this element of firm age into the discussion about how jobs are created and destroyed. And while the column today talks some about this issue near the conclusion, I wasn't impressed with it's treatment of the topic. I recommend the piece by Haltiwanger, Jarmin, and Mirinda on this topic. When looking at jobs every lens you observe through has advantages and disadvantages. I wouldn't claim looking through the added element of firm age is perfect, but to me it's still more helpful than just looking at firms smaller than 500 employees.

Local vs. non-local

The other piece I would have liked him to get into a bit which he did not is the lens used by Youreconomy.org. This is a site run by the Edward Lowe Foundation that uses privately-sourced data, NETS, which is based on D&B records. What Lowe does which I like and I think helps the debate so much is to look at "resident" and "non-resident" companies and job creation. Essentially this just means that they are able to look at jobs which are created by companies headquartered in a particular region vs. those which are not. They add to this a discussion of business size. While I don't think this is the perfect lens I do think it is at least a helpful one for most local communities in understanding job creation. Because big employers, Fortune 500 companies, for example, can be good employment contributors in some cases but the view you take on their employment might be quite different if they are headquartered in your region vs. if they are not.

Studying Business Ownership from the Household Side: New Panel Data from the Survey of Consumer Finance

Mon, 19 Sep 2011 07:58:50 GMT

In studying entrepreneurship, one typically has to make a choice of orientations – to study through the business, to study through the household, or to study through an intermediary (like a venture capital fund). Most of the time, I deal with data that comes from the business, like with the Kauffman Firm Survey, but this week I will be offering three posts on recent data updates that have been looking at entrepreneurship through household surveys. Household surveys as a mechanism for studying entrepreneurship commonly measure self-employment as a means of quantifying individual-level entrepreneurial activities. Self-employment is convenient, although not typically ideal, in that it is somewhat internationally comparable and in most official statistics have included self-employment response options for years. Each household surveys I will focus on this week is extending beyond self-employment to offer new and different means of looking at entrepreneurship, still using household frames.

While I have blogged on the Federal Reserve’s Survey of Consumer Finance before (see summary of 2007 and 2010 changes), I haven’t touched upon their efforts to create a panel of households. While I am sure the Fed has had the idea to do a household panel before (panel data is more helpful to many scholars/analysis), it is amazing what an impetus like the Crisis can do to take a concept and turn it into a reality. Their panel data will consist of 2 points in time as their 2007 respondents were resurveyed in 2009. To date, the Fed has only released a summary paper analyzing the 2007 SCF panel. In this paper the Fed highlights the important role than changes in business equity, along with values of homes and stock, appear to have on driving household wealth.

The Fed has only done a portion of what could be done in looking into these topics with such rich data. But good news - they know this! From my conversations with the Fed, it appears they are likely to release a public-use data file for the panel data at some point in late 2011 or early 2012. This should be a very interesting file for researchers interested in examining financing activities during this Crisis period and quite unique among data available.

Additionally, I wanted to blog on this anticipated data opportunity as it fits well with a recent call for funding issued by the National Bureau of Economic Research. To my knowledge no other forthcoming data set presents such a ready-made opportunity for studying household financing with a details on business equity included that has a longitudinal component.

NBER Household Finance Working Group

Call for Research Proposals 2011

The Household Finance (HF) Working Group at the National Bureau of Economic Research aims to advance understanding of household financial behavior and to provide a firm foundation for related policy discussions. The working group defines household finance broadly, to include the many financial decisions made by households, including the financial functions of payments, saving and investing/portfolio-choice, borrowing/credit, and risk management, as well as related decisions by businesses and government.

In addition to sponsoring conferences that bring together the various researchers working on household finance, the working group seeks to promote new research in the field, especially by young researchers. To this end, through a generous grant from the Sloan Foundation, we can provide four to five research grants, of $10,000-$20,000 each, directly supporting household finance projects. These grants can be applied only to non-salary costs (e.g., travel, data, research assistants, etc). Applications are especially welcome from untenured faculty members and advanced doctoral students, and for projects that would eventually generate public data that could also be used by other researchers.

Applicants should submit: a research proposal not to exceed 2 pages; a 1-page itemized budget (e.g., travel, data, etc), with brief justification as appropriate; and their curriculum vitae. These

components should be complied into a single pdf file and emailed to Denis Healy at dhealy@nber.org, with "HF research grant" in the subject line.

In cases where a substantial part of a grant goes towards data collection or production, grantees will be encouraged to make the resulting data publicly available to the extent possible, e.g., without violating confidentiality agreements, and to briefly discuss this possibility in the proposal.

Applications from doctoral students should be accompanied by a one-page letter of recommendation from a senior researcher who is knowledgeable about the project (and ideally, but not necessarily, an NBER affiliate). This letter can be emailed separately to the above address, again with "HF research grant" in the subject line (or the letter writer can submit the entire proposal in one email).

The application deadline is October 17, 2011. Applicants will be notified by early December.

Grantees will be required to deliver a preliminary working paper by August 15, 2012, and should be prepared to present the resulting research at a subsequent working group meeting (in Fall 2012 or later), if selected by the conference organizers. A complete working paper will be due by December 1, 2012.

Please direct any questions to Denis Healy at 617-588-0312 or dhealy@nber.org. More information about the HF working group can be found at http://www.nber.org/workinggroups/hf/hf.html.

Starting Smaller; Staying Smaller: A Regional Perspective

Wed, 20 Jul 2011 01:14:04 GMT

The Federal Reserve Bank of Minneapolis has a nice piece out examining many of the same issues we looked at in Starting Smaller; Staying Smaller: America's Slow Leak in Job Creation but from a five state perspective. I particularly enjoyed their interviews with some local entrepreneurs and service providers to provide additional reaction and context to some of their findings. The five states they examine, because of their geographic responsibilities, are quite interesting on this topic - Minnesota and Wisconsin (not doing that well) and North Dakota, South Dakota, and Montana (doing better). But even those states doing OK by the measures examined are only just holding steady. Indeed, it's not that you're seeing better survival rates, better job creation, or better numbers of starts but that those things are trending down for the latter states. This piece is worth a read and if you're doing a similar type of analysis at the regional level in the U.S. please let me know.

Why Starting Smaller Really Matters

Wed, 13 Jul 2011 07:22:09 GMT

In Starting Smaller; Staying Smaller: America's Slow Leak in Job Creation, we focus on declining contributions of new and young firms to employment in the U.S. over the last decade. And when people ask why this matters I say because "what you are born with is what you have to live with." This is the most important thing I have learned from studying business dynamics at the national level.

What do I mean? Look to the following chart from the report:

When we follow businesses born in the same year over time it becomes apparent that they follow some steady trends. Namely, your total cohort employment tends to be fairly sticky at age 2 (the solid red line above), about as many hirings as firings in total, but by age 5 the total employment of the cohort has dropped to 90 percent of its initial total (dotted red line above). Anything below 1 on this graphic means that the cohort of businesses has lost jobs in comparison to what they were born with; above it means the cohort has gained jobs in total. Notice that the lines on this graphic are almost always below 1. So, when a cohort of new businesses starts with less employment, it keeps less employment as it ages. The BLS and Census data show that in the last 35 years, what a business cohort has started with in terms of employment is likely to be that cohort's maximum employment over time.

As we point out in the report, the cohort of businesses started in 2009 began with between 700,000 and 1,000,000 employees fewer than would have been expected historically. There is also evidence from BLS that this slow down in employment generation has been going on for much longer. Thus, it seems we have been accumulating recent new business cohorts with less employment potential. And indeed, what people fail to realize is that the population of U.S. businesses is just like the population of U.S. - a steady accumulation of years of small changes which often go unnoticed at any point in time (see Neutralism and Entrepreneurship for a good discussion). In the U.S. case, new businesses provide a new lifeblood of business activity, fueling hiring, entry of more productive business concepts, and the like. Individual U.S. businesses come and go but on the average there is a steady and slow accumulation of businesses, driven by new entrants over time. With fewer and fewer jobs at the start and declining rates of employment retention in cohorts of businesses, as shown above, America's slow leak in job creation accumulates into a major part of America's jobs crisis.

Business Growth Charts

Tue, 12 Jul 2011 03:46:42 GMT

One of my favorite parts of the research I did for Starting Smaller; Staying Smaller: America’s Slow Leak in Job Creation was the creation of business growth charts. Any parent has seen growth chats in their doctor's office when they take in a child. They are a means of benchmarking your child's growth against the trends of past generations, providing you an objective way of understanding if your child is growing slowly or somehow might be showing signs of sickliness. The business growth charts where modeled on this concept, and while this piece of my analysis didn’t make it into the final paper, I wanted to offer a snapshot of it for some of my readers on Data Maven because I think it is a very simple format that can tell a powerful, if complicated message.

The chart above uses Bureau of Labor Statistics data on establishments to show the average employment of surviving establishments over time. What you see is the general pattern of growth, on the average, for those establishments remaining in operation over time. This is the point that we tried to make in a simplified way in the paper. But this BLS data is also very interesting because it shows simply the steady leak in jobs at all points in young establishments life spans. Each colored line follows a cohort of businesses and tells the average employment of a business in that cohort after so many years.

Unfortunately, this is one area of the report which got very confusing because the BLS and Census data show such different patterns. The Census data, shown below, also for establishments, does not share the same easy to see trends; however, what I ended up showing in the report was how both series do show a decline in the average per establishment growth in employment from year 0 to 2 and age 2 to 5.

As more countries are able to track business cohorts, all the businesses born in an economy in a given year, it becomes increasingly possible to apply some of the same principles that are used in studies of population dynamics or epidemiology to the study of business dynamics. Indeed, in many, many ways businesses exhibit many similarities to populations of people. Tomorrow, I’ll explore a bit more how businesses cohorts, like people, show signs of imprinting due to the macroeconomic factors present in their early years.

Starting Smaller; Staying Smaller: America's Slow Leak in Job Creation

Mon, 11 Jul 2011 08:30:14 GMT

Anyone following my blog knows that I have been spending a lot of time looking at jobs numbers in the U.S. as of late and am happy to say today that my report is finally out. Starting Smaller; Staying Smaller: America's Slow Leak in Job Creation is a look at long-term trends around job creation by young, U.S. employer firms. Employer firms are important to track because they are the bigger starts, those with employees, and thus tend to have more of an employment impact on the larger U.S. economy. I think for too long we have used tallies of new business starts as benchmarks of the health of the U.S. entrepreneurial system. What this report shows is that young businesses have been undergoing some major change in the last decade, particularly related to their employment patterns, and that the immediate as well as accumulated effect of these changes is a major reason for the United State's current unemployment problem. New businesses remain a critically important source for net job growth, but they are starting smaller and growing less in their first five years in comparison to historical trends. Throughout the week I'll be posting some portions of the report as well as some things that didn't quite make the final report but that I think are still very telling and of interest to a more technical audience. Here are a few of the most important charts from the report.

Trade Group Points to Disappointing Job Prospects

Mon, 27 Jun 2011 08:16:01 GMT

A belated linking to stories on NFIB's downtrodden reports on potential hiring at small businesses. NFIB's tracking of membership intentions is different from the other major surveys they complete, and I've highlighted before, but is generally seen as helpful in the direction, not the levels, that it reports. Thus when they see falls in likely hiring, that's a concern.

Alumni Surveys on Entrepreneurship

Mon, 27 Jun 2011 07:09:04 GMT

Updated Post - June 27, 2011

Babson College has published results from a new alumni survey on entrepreneurship and given Babson's ability to reach the presses, I am sure this will bring some renewed interest to alumni surveys on entrepreneurship. While I am hesitant to even mention the research as I can't locate the actual paper which this is based on, and hence also can't locate the survey they used, this is in the press. The authors come down strongly behind the value on entrepreneurship education, not something that most other alumni surveys of entrepreneurs have been able to address because of lack of matched course data and the relatively recent explosion of entrepreneurship classes. They find more impact in this regard on a student having taken actual courses than just having completed a business plan.

Alumni surveys remain a strong vehicle for research right now, partially because of recent successes at some key locations with the design, but I have to also believe in an era of austere budgets this is one collection mechanism that a lot of schools could find donors or internal support to collect. I know we currently have a small amount invested in an effort at Stanford to collect similar information so should be more coming out on this topic in the next year.

Original Post - March 4, 2009

A week or so ago, we released a report based on an alumni survey of Massachusetts Institute of Technology (MIT) graduates which looked at the their incidence of entrepreneurship. It had some interesting findings, including:

An estimated 6,900 MIT alumni companies with worldwide sales of approximately $164 billion are located in Massachusetts alone and represent 26 percent of the sales of all Massachusetts companies.
4,100 MIT alumni-founded firms are based in California, and generate an estimated $134 billion in worldwide sales.
States currently benefiting most from jobs created by MIT alumni companies are Massachusetts (estimated at just under one million jobs worldwide); California (estimated at 526,000 jobs), New York (estimated at 231,000 jobs), Texas (estimated at 184,000) and Virginia (estimated at 136,000).

While MIT is without a doubt an anomalous university in the U.S. and globally, the power of this survey was to quantify for the first time a portion of the entrepreneurial impact MIT has had over the last several decades. I say a portion because this survey only looked at companies started by MIT alumni, not all the other effects in terms of inventions, human capital creation, etc. While I haven't talked to the MIT authors about why they started this survey, I suspect it had something to do with wanting to know how entrepreneurship from MIT was contributing to local, national, and international economies. As universities have become more of a focus for economic growth, being able to quantify these effects would naturally become more of a focus.

This morning I ran across a similar new alumni survey out of Iowa State University that also looks at incidence of entrepreneurship among other topics such as those who created a non-profit or report having filed for a patent. They find that Iowa State alumni have created businesses that employ about 35,000 in Iowa and more than 220,000 in the United States. This is interesting to have along with the MIT report because Iowa State is an example of a public university that also has a significant historical focus on entrepreneurship through the Pappa john Center for Entrepreneurship. Their methodologies don't appear identical, but should prove interesting to compare in this seemingly emerging area of study.

Are there other alumni surveys that I have missed that cover entrepreneurship? Please send them my way. In the meantime, the MIT survey instrument is available online for those wanting to take a closer look. If you are considering undertaking a similar study at a specific university, let us know so perhaps there can be more comparability among disparate efforts.

Every 5 Years We Get a Picture

Fri, 24 Jun 2011 08:16:54 GMT

The Census Bureau's largest survey of young and small businesses, done once every 5 years, is out with new, and close to it's final, data publications using the 2007 Survey of Business Owners. Check out the following topics on their site today.

Characteristics of Businesses

Data on American FactFinder (by gender, ethnicity, race, and veteran status):

Jointly Owned or Operated by Spouses: (Industry Detail) (Receipts Size) (Employment Size)

Majority of Business Family-Owned: (Industry Detail) (Receipts Size) (Employment Size)

Number of Owners of Business: (Industry Detail) (Receipts Size) (Employment Size)

Year Business Originally Established: (Industry Detail) (Receipts Size) (Employment Size)

Sources of Start-Up or Acquisition Capital: (Industry Detail) (Receipts Size) (Employment Size)

Amount of Start-Up or Acquisition Capital: (Industry Detail) (Receipts Size) (Employment Size)

Home-Based Business: (Industry Detail) (Receipts Size) (Employment Size)

Operated as a Franchise: (Industry Detail) (Receipts Size) (Employment Size)

Owned by a Franchise: (Industry Detail) (Receipts Size) (Employment Size)

Sources of Capital to Expand Business: (Industry Detail) (Receipts Size) (Employment Size)

Type(s) of Customer Categories: (Industry Detail) (Receipts Size) (Employment Size)

Percent of Total Sales Exported: (Industry Detail) (Receipts Size) (Employment Size)

Operations Established Outside United States: (Industry Detail) (Receipts Size) (Employment Size)

Outsourced Business Function Outside United States: (Industry Detail) (Receipts Size) (Employment Size)

Language(s) Used in Transactions: (Industry Detail) (Receipts Size) (Employment Size)

Type(s) of Workers Employed: (Industry Detail) (Receipts Size) (Employment Size)

Employer-Paid Benefits Offered: (Industry Detail) (Receipts Size) (Employment Size)

Company Had a Web Site: (Industry Detail) (Receipts Size) (Employment Size)

E-Commerce as Percentage of Total Sales: (Industry Detail) (Receipts Size) (Employment Size)

Company Made Purchases Online: (Industry Detail) (Receipts Size) (Employment Size)

Seasonal or Part-Time Business Status: (Industry Detail) (Receipts Size) (Employment Size)

Business Operating or Reason Ceased: (Industry Detail) (Receipts Size) (Employment Size)

Press Release

Summary of Findings

Characteristics of Business Owners

Data on American FactFinder (by gender, ethnicity, race, and veteran status):

How Initially Acquired Business

Year Acquired Ownership of Business

Primary Function(s) in Business

Average Hours Per Week Spent Working

This Business Primary Source of Income

Prior Experience Owning a Business

Highest Level of Education Completed

Age of the Owner in 2007

Owner Born in the United States

Service-Disabled Veteran Status

Two New State-Level Data Resources

Fri, 24 Jun 2011 06:06:48 GMT

The U.S. Chamber of Commerce has a report out called "Enterprising States" which uses some of the Kauffman Index data along with net establishment birth rate, 2006-2007, from the U.S. Census Bureau Business Information Tracking Series to rank states related to entrepreneurship. Also this week the SSTI has released rankings of "State Business Churn Data & Ranking, 2004-2009" which utilizes Small Business Administration tables (provided by Census) to look at entry and exit in states.

Updated: Stumbling Towards Our Statistical Future

Wed, 15 Jun 2011 06:30:45 GMT

--Updated Post--June 15, 2011

I wanted to repost my comments from June 2010 at a National Academies' conference on how to increase innovation in federal statistics as the final report from the National Academies of that event is now available. They picked up on some of my comments on user innovation, as did some of the agencies in the room. I am pleased to report that some of the concepts I raised at the event have been implemented in different agencies - most concretely the idea of putting notices of opportunities to comment closer to where users are getting their data (Business R&D and Innovation Survey from NSF and Census is latest). These are some small but good changes. I still worry that the concreteness of that recommendation came through but some of the spirit of it might not have. I'm going to be mulling over some of these concepts for an upcoming presentation I am contributing to, coincidentally at the National Academies, so will be thinking more on the subject again.

As for the final report, I think there are some good things in it, but I must admit I was very disappointed in the event. It was a discussion of innovation led almost entirely by the people who are already heavyweights in the system and that made range of the discussion very narrow. I didn't see much of an outsider perspective. The statistical system's real concern with innovation should be that they have so few interested parties in the room. At that event there were a few of us not from the system as speakers but that was about it. The room was packed with agency representatives. Every major industry association and business group should have been concerned with that meeting if it was actually relevant because it'd mean that the system was trying to find ways to be relevant. As I found the meeting, it was a discussion of how we can be better at things we probably should have been better at 10 years ago; not how we can be an innovative statistical system that measures the pulse of the U.S. and global economies and sets the tone for what innovation means in statistical systems around the world.

--Original Post--June 28, 2010

Tuesday I will be a discussant at the National Academies’ Committee on National Statistics workshop in Washington, DC, looking at how to facilitate innovation in federal statistics. It’s a topic I am passionate about and unfortunately it’s an area of interest where we often feel like soloists rather than members of a choir. As we raise our calls for improvement and the need to better measure business activity we need more charitable foundations, academics, businesses, and local economic development officials at the table. If it weren’t for the tireless work of groups like the Association for Public Data Users (APDU), I fear that the meager levels of innovation which currently exist in the system would be next to nonexistent.

Desire for Internal Innovation. In our experience dealing with entrepreneurship and innovation measurement, I’ve seen a lot of personnel within specific agencies that want to see more innovation in their products. Sadly, too often these personnel have no forums or opportunities to explore possible improvements and few incentives that would encourage innovation. More than any funds we’ve spent, our efforts to spur improvements in federal data on entrepreneurship and innovation have come mostly through convening of symposiums and workshops that allow agencies to present their plans for improvement, debate with academic and agency experts, and see what other exciting developments are occurring in academic and agency environments. The returns to this dialog seem only to increase over time and seem well-placed for topics-based statistical discussions.

Recommendation: Create more opportunities for agency representatives to present and receive feedback on their plans for the future before plans are finalized.

Users Can Drive Innovation. When you provide basic information, like the statistical agencies often do, one of the saddest parts of the process is that much of the information goes on to uses which you never become aware. As a major producer of data, at Kauffman, I know how excited I get to see some of our data used in an analysis or something new but too often the public doesn’t circle back with this material. We’ve seen in our own experience that if you create events, online platforms, and other vehicles to show your support of users that it can result in a positive feedback loop and improved data quality. Through the Kauffman Firm Survey, we’ve undertaken an annual open call for suggested improvements in the data we collect which has over the years led to major improvements in the usability of the data for research and analysis. Had we not undertaken this process of trying to interact with the users of our data we would have missed significant improvements in data collected on the finances of new firms which are going to greatly improve our analysis of the current recession.

Sadly, most agencies know few of the users of their data, and even where they know them they are often hesitant to interact and hear their needs, feedback, etc.

Recommendation: Create opportunities for the statistical agencies to create communities of high-end users for specific products in an open, online environment.

Interaction, Interaction, Interaction. I am not sure how many ways I can say it but I’ll say it one more – interaction. The thing which I find most disappointing with the current statistical system is that individuals within agencies often want more interaction with each other and other experts on their topical collections but for the large part this does not happen. Money to travel to conferences is very limited and the interagency groups and agencies overseeing some of this process only have opportunities for interaction at very high levels, not on more granular areas of interest and need. At Kauffman we try to bring academics into the conversation but know that from trying to do this that it’s very tough. Key constituencies like state representatives and sub-state representatives don’t have formal bodies where the agencies can receive feedback on possible data publications and so they don’t hear what these groups actually want.

Recommendation: The Office of Management and Budget (OMB) should create a council of state data representatives to provide a sounding board for new state-level data development, to proactively develop a list of priorities in state-level data development, and to allocate additional funds agencies for priority projects.

Push Ourselves First. As someone who takes time to read most notices about data collection on the Federal Register, I applaud the few efforts that actually submit meaningful requests for feedback and are open to feedback submitted. In reality these processes are largely a formality that is hidden away so that as few people as possible find them. Even submitted comments following outlined procedures can be dismissed as “it’s too late in the process.” Let’s stop this self-perpetuating process of mediocrity. If we are going to seek comment, seek comment.

Recommendation: Look for feedback and post prospective notices of data to be collected alongside the actual web pages where data is disseminated and start to create opt-in user groups.

I’ve offered a lot of criticism here but I recognize that we at Kauffman still have a lot to learn in this regard. One of the things are beta testing is this concept of a Data Wiki for the Kauffman Firm Survey. It’s not something which was easy for us to do and opens us up to user feedback, positive and negative, in a much greater way that we’ve done before. But this is also an area where we believe what we learn can help to inform the statistical agencies.

In my opinion, until OMB and the agencies become more genuine in their efforts to draw data users into the conversation we have little room to complain about lack of funding. These are things within their power to change. We cannot afford to idly hope for improvements in national statistics. I hope others out there agree with me and will add your voice to the discussion.

Informal Economies

Thu, 09 Jun 2011 05:11:58 GMT

Formal is better; informal the scourge. While I still remain largely in that camp, I have to say that an article in today's Financial Times gave me some pause on this question. Growing up in a middle class household in the U.S. Midwest left me with a world view that is intrinsically oriented to the formal economy - or at least I thought. My grandmother, may she rest in peace, was an amazing woman and indeed the main entrepreneur who I have had in my life and yet I doubt very much that she always reported all of her income. A highly ethical woman in my estimation, she was widowed with three children (one under 1) at about the age of 30 and went on to send all of them to college while living independently and only remarrying briefly. At the age of 88 she was still running her own seasonal business for most of the year and beating me handedly at any game that we engaged before her death. Just as she probably used a bit of creative accounting to get by at certain times, today's article points out some of the ways in which certain economies are likely surviving currently because of their informal economies.

I have spent a lot of time in Spain in the recent year which has brought me head long into contact with the informal economy. Indeed, when first here I have to say I nearly burst a blood vessel trying to deal with some of the things which could only be done in the informal economy which I was used to being formal. I had some of my most heated arguments and grandstanding trying to deal with people who by all appearances were part of the formal economy but apparently were not. As the article rightly points out, Spain's informal economy must be among the biggest in the developed world. And yet, with all of the economic pain and tumult in the Spanish economy, by my reading of currently available data Spain is the hardest hit country anywhere in terms of pre-Crisis and post-Crisis impact on new business formation and the existing small business sector, the Spanish economy is still functioning. Yes, there have been some significant protests, but as I think the article correctly identifies if Spain didn't have some of this informal economy there is no way that it would not be in a revolutionary state. (I am not sure it won't reach that state but it's not there currently.) If the government wants to bring some of this informal economy into the formal economy, which seems necessary for longer-term growth potential, then it needs to face facts about the repressive regimes which remain in place for many formal business and other activities. That said, in my opinion, Spain has no choice but to live with its informal economy currently as the changes that it needs to make to much of its burdensome regulatory and other regimes will take time and seem deeply, deeply rooted in culture and society.

Well, that is all a bit of an aside probably for most of my readers. I offer it only in the way of saying, this topic of informal economy measurement is extremely important. Many of the data projects we have funded only focus on the formal economy because high-growth companies need to be operating formally (OECD and World Bank), but I am sure that this set of measurement issues is important and indeed will likely be incorporated by many scholars as a measure of institutions in different countries. The Financial Times article is data driven, offering estimates from Friedrich Schneider that appear to be the going standard in this area, but it also has a nice discussion of the dangers of measuring the informal economy over time. I would expect that we will see a lot more measurements of the informal economy as the markers of business and household activity (all the data we are leaving in our daily activities) explode in the coming years; it is these data or things like electrical consumption that seem most common bases for estimating the actual business activity in a country. Those interested in this area should check out the article or the longer journal article which I have been told by experts at the World Bank is where they currently draw from:

Schneider, F. and D. Enste, 2009. Shadow economies: Size, causes and consequences. Journal of Economic Literature, 38(1): 77-114.

Here is a sneak peak at some of the data the Financial Times presents:

Data on Past Disasters Could Open Door to Understanding Recoveries

Fri, 03 Jun 2011 06:43:23 GMT

I just came across a blog from the Guardian, DataBlog, which could give way to hours or days of exploration - if only I had that luxury. Perhaps my only complaint is that DataBlog seems to be covering everything and in every direction. They have a database of databases that cuts across countries and topics from business registrations to abortion. But as such, it's ironic that I'd find out about a major U.S. database on a U.K.-based site but that's just how the world works these days.

The new database is from the Federal Emergency Management Association (FEMA) and provides state-level details about every declared emergency since 1953 in the United States by type of emergency (tornado, flood, etc.). If you were wondering, Texas looks to hold the title of most declared emergencies in that time period at 3,293 - mostly hurricane related. I can only imagine that this data will lead to finer-grained forthcoming data about these emergencies at a more local level or more metadata about the emergencies at the state level.

So what does this have to do with entrepreneurship and innovation? Well, it's probably more of interest to entrepreneurship scholars but from my perspective there remains opportunity to tell the story of how businesses rebuild, new businesses come in, and the general business dynamics recover after natural disasters. The existing FEMA data looks to lend itself well to potential marriage with other data now available tracking cohorts of businesses over time at the state level that are available from the Census Bureau and Bureau of Labor Statistics. Indeed, in my opinion, we are going to be seeing a lot of research looking at state-level impacts on entrepreneurship in the coming years. I know I've reviewed two such papers this month, both of very good quality that make use of the confidential Kauffman Firm Survey data file.

Two additional concluding thoughts:

I'm introducing a new tag - state - in my tag cloud to start tracking state-level data sources which I come across.
On the very important topic of what we know about entrepreneurship and natural disasters, if you've got research or data in this area, please let me know as we get a lot of media requests on this topic, and it'd be great to be able to point to some quality academic work in this area.

New Report Gives Overview from BLS

Wed, 01 Jun 2011 08:38:01 GMT

The Bureau of Labor Statistics continues to improve their presentation of information relevant to the study of entrepreneurship. "Entrepreneurship and the U.S. Economy" is a must read for policy-makers as it presents some very important aggregate trends in an up-to-date and simple to understand way. That said, just once caution, as I am currently writing and researching using these data. Some of the jobs trends seen in the BLS statistics and Census Bureau statistics are quite different and need to be looked at together.

A particular chart that stood out to me in BLS's publication is the following which really charts how the most recent recession most significantly impacted large and small businesses and medium-sized businesses weathered somewhat better:

The Best Uses of NETS

Fri, 29 Apr 2011 05:13:58 GMT

The National Establishment Time-Series (NETS) Database, a longitudinal database of linked Dun & Bradstreet records, is one of the standout data sources to emerge in the last half decade for the study of entrepreneurship (and businesses, more generally). As an early proponent of the potential of this data, I wanted to offer some commentary now that comes from grantees that have used the NETS data for different purposes such as matching to other data sets, surveys, or just aggregate examinations of firm dynamics. Every data set has its advantages and disadvantages, NETS is no anomaly in this regard, but one of the unique things about my role is that I get to see some of these trends and connect experiences. These comments emerged as the result of an email inquiry I had made to those listed here for a potential new project. I found the comments so valuable I decided they should be published as blog post so that others could see them. All the commentators were allowed to review and modify their comments before posting. I would encourage others who have experiences that can help to hone the use of NETS and hopefully drive improvements to its core to add them as comments to this post.

From Alejandro Amezcua, Syracuse University

“The strengths of the NETS are its historical address information, descriptive data (industry, incorporation codes, and CEO and ownership demographics) and survival measures. These traits seem sufficient to conduct event history analysis using quasi-experimental methods.

If your focus is on other types of performance such as growth, then I'm not convinced this is the best dataset. I found in my research that employment and sales figures in the NETS are often estimates and not actual observations of the levels of these measures. It presents a problem when you are dealing with small firms because you lose variation since so many of these small firms appear to reach stability over short periods of time. I'm still using the data for this purpose but I take the results to be more speculative than definitive.

Also, the lack of information on other attributes of organizations (i.e. invested capital, costs, revenue streams, and the education and experience of CEOs) makes it hard to account for unobservable differences that may be the underlying cause of performance when evaluating a policy outcome. There are statistical methods to address these issues but these also open the door to skepticism and criticism.

I'm working on ways to improve on the value of the NETS by merging it with other datasets to add richer data to what I already use. Depending on the types of firms being studied, one may improve on the types of controls that can be accounted for and on the type of performance being evaluated.”

From Antoinette Schoar, MIT

“I agree with Alejandro that NETS is not the best data to see changes in firm level outcomes. In our work we found that the information on sales and credit scores are actually the best of their outcomes variables, and are updated reasonably well. But especially employment variable are very sticky in NETS and do not seem well covered in NETS.

One of the best data set that you could use is probably LBD data at Census, but this data is difficult to access since you need to apply for access.”

From David Neumark, UC Irvine

“I am less skeptical of the employment measures than Alejandro and Antoinette, although it depends how you are using the data. At the individual establishment level there is clearly a lot of stickiness. But when you are averaging across many establishments (like in our EZ paper) this doesn't really matter. I think that if you are matching based on geographic location the NETS are very useful although the geocoded information that comes provided with the data might need to be re-geocoded.”

See select other posts dealing with NETS: Comparing Business Registers; youreconomy.org Updated

New Data from Census Points to Falling Job Creation

Wed, 23 Mar 2011 10:49:47 GMT

The Census Bureau has released new tabulations for its Business Dynamics Series that show in stark detail how the recession has not only significantly impacted job destruction in the U.S. but also the rate of job creation. 2009 brought job creation rates in the U.S. to their lowest level on record (in 29 years). Read an overview report or explore the data (which is available by SIC and state, as well as what is included in the report).

Kauffman Index Holds Steady - Increasing Evidence of Smaller Starts

Mon, 07 Mar 2011 07:52:55 GMT

This morning we released the 2010 Kauffman Index of Entrepreneurial Activity. The Kauffman Index is a rather unique measure of entrepreneurship as it relies on a quirky design of the U.S. Current Population Survey to come up with a monthly measure of the number of households transitioning into entrepreneurship from other labor force statuses.

Since we are working from a household survey, the Kauffman Index has the advantage of being able to give very detailed demographic information about who is becoming an entrepreneur. Indeed, it's from this perspective that these current year findings arise:

The immigrant rate of entrepreneurial activity increased substantially – from 0.51 percent in 2009 to 0.62 percent in 2010 – and declined slightly for the native-born. This increase expanded the large positive gap that already existed between immigrant and native-born entrepreneurial activity rates.
A growing immigrant population and rising entrepreneurship rate contributed to a rise in the share of new entrepreneurs that are immigrant, from 13.4 percent in 1996 to 29.5 percent in 2010.
Entrepreneurial activity increased slightly for men and decreased slightly for women. For men, the entrepreneurial activity rate increased from 0.43 percent in 2009 to 0.44 percent in 2010. The female entrepreneurship rate decreased from 0.25 percent to 0.24 percent.
The African-American entrepreneurial activity rate decreased from 0.27 percent in 2009 to 0.24 percent in 2010. The white entrepreneurial activity rate decreased from 0.33 percent to 0.31 percent.
The entrepreneurship index was highest among the least-educated group, moving from 0.49 percent in 2009 to 0.59 percent in 2010, suggesting an increased number of people entering entrepreneurship out of necessity. The largest decrease in entrepreneurial activity occurred for high school graduates.

On Data Maven, I wanted to specifically point out two new features of this year's report. First, and most importantly, is the expansion of the report to utilize the Business Employment Dynamics (BED) series data from the Bureau of Labor Statistics. One of the limitations of the CPS as a data source is that we are not able to disaggregate the type of businesses whose start is captured in the Kauffman Index. Thus, the Kauffman Index captures both transitions to self-employment as well as the start of larger businesses. In an attempt to add more depth of understanding to the current state of entrepreneurship in the United States, an aggregate measure of new employer establishment starts was computed this year from the BED. The resulting picture, shown below, gives a much more accurate national picture, in my view:

Taking the Kauffman Index and BED-based measures both into account gives the picture of an economy with the highest number of people becoming entrepreneurs on a monthly basis but most of them only going into self-employment or starting lower employment-potential businesses.

The second change that I wanted to highlight this year was something which I originally wrote about last year in a blog post - a look at the changing look of entrepreneurs, in the aggregate. This takes into account both the proclivity to become an entrepreneur (the Kauffman Index) and also the changing demographic composition of the U.S. to look at changing total numbers of new entrepreneurs. For three categories in particular, this measure is quite telling.

Call for Census to Produce More on Immigrant Entrepreneurs

Mon, 07 Mar 2011 07:20:08 GMT

On the heals of the Kauffman Index release, I want to call on the Census Bureau to produce more information on immigrant entrepreneurs. In my other posting I pointed to some of the big shifts which have occurred in the composition of new entrepreneurs over the last decade but I think it's worth repeating that here:

As the Kauffman Index shows immigrant entrepreneurs made up almost 30 of all new entrepreneurs in 2010, more than doubling over the last decade and a half, and yet this is a group which we know very little about systematically at the national level and especially at the sub-national level. There are competing streams of research (see Wadwha, et. al and Hart, et. al), some of which Kauffman has funded, that point alternatively to the importance or the normalcy of immigrant entrepreneurs. Regardless of which stream of research you believe more, the Kauffman Index numbers make it strikingly apparent that we need to know more about rapidly growing population of new entrepreneurs.

I specifically suggest to Census that it consider adding a report to the current production schedule for the Survey of Business Owners which is the largest survey of small business owners. In 2007 this survey added a question about immigrant status of business owners (a good move!) but currently there are no plans to specifically provide a detailed overview of immigrant entrepreneurs (see SBO release schedule here). The SBO already provides detailed overviews of Black, Hispanic, Native American, American Indian or Alaska Natives, Native Hawaiian or Pacific Islanders, Asian, Women, and Veteran-owned businesses. The immigrant data will be part of the June release of the report "Characteristics of Business Owners" but today I want to call on Census to consider adding a separate and more detailed Immigrant overview. The SBO could provide detailed sub-national estimates of the type and impact of immigrant-owned businesses and help to understand what has been a seemingly large shift in the composition of new entrepreneurs. The data exists; all that is needed is a recognition of this important group among entrepreneurs.