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Better Economy Means Fewer Entrepreneurs

Job applicants meet potential employers at a jobs fair in New York

Photograph by John Moore/Getty Images

Job applicants meet potential employers at a jobs fair in New York

At a time when startup mania seems to have seized America, with locales from Iowa City to Burlington, Vt., anointed burgeoning tech hubs, it’s easy to forget one big reason people start their own ventures: economic necessity.

During the Great Recession, fewer available jobs led more Americans to launch businesses. Now that the economy is improving, fewer people are starting companies.

That’s according to the Kauffman Foundation’s Index of Entrepreneurial Activity, released today, which found that 0.3 percent of the adult population started a business in each month last year, down from an average of 0.32 percent in 2011. The decrease was more pronounced for men than for women—0.38 percent of men started businesses each month in 2012, down from 0.42 percent a year earlier. The index also charted new business creation by race, finding that Latinos slowed their entrepreneurial activity the most in 2012—launching companies at a rate of 0.4 percent a month last year, down from 0.52 percent in 2011.

“It’s likely not a coincidence that the number of new businesses created dropped when the economy improved last year,” says Dane Stangler, director of research at Kauffman, in a press release. “While a stronger economy is good for business growth, it also means the unemployed find jobs instead of starting firms.”

So there you have it. Hire a new employee, squelch a would-be entrepreneur.

Clark is a reporter for Bloomberg Businessweek.

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