America’s recovery from the Great Recession may have been better than that in most developed countries, but it’s still been bumpy and uneven — in more ways than one. While economic growth has spiked and slumped over the last seven years, a new study suggests that startup activity has also been clustered in very specific areas, which could lead to future economic trouble for large areas of the country.
A recent analysis by the Economic Innovation Group, an advocacy organization for entrepreneurs, found that between 2010 and 2014, most of the startups created were concentrated in just 20 counties, mostly on the coasts and in Texas. Those counties are home to just 17 percent of the U.S. population. And the report found a wide gap in startup activity between urban and rural areas. The nation’s ten biggest cities are on the hot list, and 17 of the 20 counties were found in just four states: California, Florida, New York and Texas.
Some of the factors behind the startup trend are clear: The businesses launched since the Great Recession have been dominated by high-tech companies requiring an educated workforce based mostly in cities. Urban counties are more likely to host large foreign-born and immigrant populations, groups that are more likely start new businesses, the report said.
Even so, EIG pointed to the concentration of startup growth in such few regions as a “massive and historically unprecedented imbalance in the geography of business creation.” Previous recoveries saw many more regions drive business growth, EIG explained, noting that from 2002 to 2006, 64 counties drove business growth, and from 1992 to 1996, business development was spread across 100 counties (you can see how the concentration has changed in the map at bottom).
“The geographically uneven nature of the decline in new business starts implies that large swathes of the country will soon contend with a missing generation of firms — ones that should be providing employment opportunities and new foundations for economic growth in the years ahead,” the report concluded.
John Lettieri, one of the founders of the Economic Innovation Group, testified before the Senate last week that the geographic divide in startup activity, along with a broader decline in economic churn, has left the U.S. economy less flexible and efficient than it used to be. The consequences of these changes, he said, were dramatic: “A rising tide of geographic inequality separates millions of Americans from the economic gains of the national recovery, as fewer areas are carrying the bulk of overall U.S. economic growth.”
EIG also drew attention to data that shows that the number of startups in the U.S. has been in decline for years, noting that from 1977 to 2013, startups as a share of firms fell from 17 percent to just 8 percent. And the new report finds that the creation of new businesses even in the top 20 counties has slowed compared to previous periods.