The American employer business startup rate has been in a secular decline since the 1970s and the availability of more reliable data in recent years in Europe show Ireland among the persistent startup laggards in the European Union (EU28).

 

Ireland's startup data is incomplete and there is not reliable data for employer firms with at least 1 employee — the latter category is important in terms of the economic potential of such firms compared with one person operations and the Organisation for Economic Cooperation and Development's (OECD) recently published 'Entrepreneurship at a Glance 2016' report (with  data to 2014) which mainly excludes Irish business demography data and we rely on Eurostat and CSO (Central Statistics Office) data.

The startup rate is the number of enterprise births in a year as a ratio of total active business enterprises. Ireland's rate in 2014 was close to 7% compared with a UK rate of 14%the UK economy is the most dynamic in Europe.

The CSO's latest business demography data show that in the key 'Information and communication' (ICT) sector, the birth rate was 10% in 2014 while the death rate in 2013 was 9%. In the UK official British data show that in 2015 ICT employer firms' birth rate was 16% and the death rate was 9% — the overall UK employer birth rate was at 15% and the death rate was 9%.

The Irish death rate data available is in respect of the recession period and is thus not very useful. However, on the birth in a new series since 2008, the Irish rate has been in the 6 to 7% range while the UK birth rate was at 13% in 2008, dipped to 10% in 2009 and 2010. The British birth rate has been at 12% or above since 2011.

In a previous series for 2007 — the last full year of the property bubble — CSO data for births and deaths showed 17,263 enterprise deaths and 13,461 births.

Developed countries

The OECD says that trend startups remain below pre-crisis rates in most OECD economies, with rates in Belgium, Finland, Germany, Iceland, Italy and Spain between 20% and 50% lower, according to the most recent data. "Only Canada, France, the Netherlands, Norway, Sweden and the United Kingdom had higher rates at the end of 2015 and beginning of 2016."

In the European Union in 2014 the EU28 birth rate was 10% according to Eurostat and the Irish birth rate at 7%, was second-lowest to Belgium at 4% — however in Part 2 we will show that the post-entry Belgian growth rate of survivors is the highest in the sample while in New Zealand and Turkey the startup rate is high but average post-entry growth is much lower.  

Denmark's birth rate has been above 10% since 2009; the Netherlands was at 13% in 2008 and 10% in 2014; France was at 10% in both 2008 and 2014; Germany was at 9% in 2008 and 7% in 2014; Spain was at 7% in 2008 and 10% in 2014 while Portugal was at 15% in both years.

The OECD's definition for start up rate is in respect of a 2-year period from birth while birth rate is used in respect of the first year.

The think-tank for 35 mainly developed country governments noted this year:

Some care is needed in interpretation. Large countries are, other things equal, likely to exhibit lower birth and death rates than smaller countries, as firms are able to expand within the national economic territory via the creation of new establishments. For smaller countries, similar expansions will be recorded as a birth if the parent enterprise in one country expands through the creation of an affiliate enterprise in a neighbouring country.

The US Census Bureau’s Business Dynamics Statistics (BDS) program last September released its estimates for the year 2014.

Startups’ share of all US firms dropped from 8.1% in 2013 to 8.0% in 2014. 403,900 new firms opened in 2014, down from 404,500 in 2013 and the startup rate remains below the 10.8% achieved in 2006 and only slightly above all-time low of 7.8% reached in the depths of the recession.

The rate was above 16% in 1977 as per the chart below and the Economic Innovation Group said that startups’ share of all US jobs rose slightly from the all-time low of 1.9% reached in 2013 to 2.1% in 2014. That figure remains low, however  —  equivalent to 2009 and 2011 levels and well below the 3.0% achieved before the latest recession, in 2006.

The group also said that the share of all US jobs in firms age 16 years or older reached another all-time high (for firms of this age data only goes back to 1993) of 73.6%, up another half a percentage point over the year.

Startups, Europe, US, Ireland 2007 - 2016

The big impact of young firms

Startups and young firms up to 5 years old have a key roll in job creation and the secular decline in both the US and other OECD economies is a serious challenge.

The OECD says that on average, firms 5 years old or younger account for only 21% of total employment, but are responsible for 47% of job creation. The aggregate figure, however, masks a fair degree of heterogeneity: it is only a tiny fraction of startups that substantially contribute to job creation, while the majority either fail in the first years of activity, or remain very small.

US startups decline, dynamism, Europe

Economic Innovation Group

Chart on top: Eurostat enterprise birth rates, business economy, 2013/2014 (%)—  last 3 countries on chart: Ireland, Belgium and Norway (which is not a member country of the EU).

Europe's tech woes but digital sector creates wealth and few jobs

Real net income after tax of top global firms up 400% since 1980

Part 2 of series: Tiny number of young firms account for most net job creation

Part 3 of series: High-growth firms transient; not typically in high-tech sector