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Old and in the Fray: The Coming Entrepreneurship Boom

Wednesday, June 17, 2009

It’s no secret the population of the United States is aging rapidly. The country may be on the cusp of an entrepreneurship boom—not in spite of this aging population but because of it.

The United States will eventually recover from the current deep recession and then the overriding concern will become the resumption of growth. Will we return to the high growth and productivity rates of the post-1995 decade? Or, in a gloomier scenario, are we in for a sustained period of sluggish growth like what afflicted most developed countries from the early 1970s to the mid-1990s?

The primary determinant of which path we take is our level of entrepreneurial activity. In terms of job creation, innovation, and productivity, entrepreneurs drive growth. A major worry is that the basic demographics of the United States will inexorably tilt the country toward a stagnant growth path. An aging country, with the baby boom generation moving into retirement, does not strike many as an entrepreneurial society—and yet it should.

Several facts have emerged from Kauffman Foundation research that indicate the United States might be on the cusp of an entrepreneurship boom—not in spite of an aging population but because of it. And, to the extent that entrepreneurship is a key driver of economic growth, this could bode well for America’s growth potential.

Consider the broad population trends in the United States, as illustrated below.

Stangler1

Notwithstanding the baby boomlet of 19891991 that has resulted in the largest high school graduating classes in history, the age curve of the United States continues to shift. In particular, we are currently experiencing a bulge in the 4564 age group which, naturally, will mean a bulge in the over-65 age groups in coming years. Life expectancy, moreover, keeps extending farther and farther: by 2050, American life expectancy will be 83 years, compared to 78 today.

Why does this matter for entrepreneurship? Contrary to popularly held assumptions, it turns out that over the past decade or so, the highest rate of entrepreneurial activity (a measurement of new business creation) belongs to the 5564 age group. The 2034 age bracket meanwhile—which we usually identify with swashbuckling and risk-taking youth (think Facebook and Google)—has the lowest. Perhaps most surprising, this disparity occurred even during the decade surrounding the dot-com boom—when the young entrepreneurial upstart became a cultural icon.

  • In every single year from 1996 to 2007, Americans between the ages of 55 and 64 had a higher rate of entrepreneurial activity than those aged 2034.
  • For the entire period, the 5564 group averaged a rate of entrepreneurial activity roughly one-third larger than their youngest counterparts.
  • These trends seem likely to persist: in the Kauffman Firm Survey, a longitudinal survey of nearly 5,000 companies that began in 2004, slightly less than two-thirds of firm founders are between the ages of 35 and 54.
  • Additionally, Kauffman research has revealed that the average age of the founders of technology companies in the United States is a surprisingly high 39—with twice as many over age 50 as under age 25.

Stangler2

Changes in job tenure, moreover, support this shift: the length of time at which Americans remain at their jobs has fallen across every age group in the last quarter-century, with the most pronounced declines among that cohort normally associated with career jobs: middle-aged men. Long-term employment, in fact, has fallen dramatically for people ages 3564 over the past 50 years. While people under 30 have historically jumped from job to job, the most striking development today has been the deep drop in the incidence of “lifetime” jobs among men over age 50.

Contrary to popularly held assumptions, it turns out that over the past decade or so, the highest rate of entrepreneurial activity belongs to the 55–64 age group.

We must consider that these demographic and business formation rates are a one-time occurrence. The time period under study, after all, happened to see a rebirth of entrepreneurial capitalism in the United States. The continuing recession, moreover, may exert a persistently negative effect on attitudes toward risk-taking. It is also possible, and quite likely, that the long-term change in job tenure contributed to the high rate of entrepreneurial activity in the 1990s among those over age 45. Can we expect this trend to die out, particularly with an influx of twentysomethings who have come of age in an entrepreneurial society? We could certainly see an increase in entrepreneurial activity among those under age 30, a development the recession might accelerate because of the deep employment cuts among large, established companies.

But a steady increase in life expectancy also means that Americans are not only living longer but also living healthier longer, suggesting that those entrepreneurial 60-year-olds could be entrepreneurial 70-year-olds in the 2020s. Even if business formation rates fell within this age group, we would still have tens of thousands of potential mentors to the next generation of entrepreneurs. The effect of technology, too, must be considered—is firm formation somehow different in the first Internet-era recession? Transaction costs and barriers to entry have fallen for people of every age.

Given the shifting age distribution of the country, the continued decline of lifetime employment, and the recession’s effect on established sectors of the economy, we may be about to enter a highly entrepreneurial period.

The larger effects of the recession will also bear on entrepreneurial demography: the very idea of “too-big-to-fail” institutions has been permanently damaged. Recent economic trends away from lifetime jobs and toward more and more new companies will thus gain even greater cultural traction. New and stronger regulations that will aim to prevent the rise of such giant organizations may also help create a more market-oriented society, in the sense that we will see increasing numbers of new firms of smaller size, competing and cooperating, challenging incumbents, and, perhaps, rising and falling at faster rates.

Given the shifting age distribution of the country, the continued decline of lifetime employment, the experience and tacit knowledge such employees carry with them, and the effects of the 2008–2009 recession on established sectors of the economy, we may be about to enter a highly entrepreneurial period.

Dane Stangler is a senior analyst at the Ewing Marion Kauffman Foundation.

Image by Darren Wamboldt/Bergman Group/Shutterstock.

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