By Nathan Davis
According to research by the Kauffman Foundation, businesses between 0 and 5 years of age only accounted for x% of all businesses in the U.S. in (YEAR), but accounted for x% of net job growth. While young firms saw a much higher rate of firm death, the rate of job creation was high enough to ensure that new businesses could have a net positive effect on the job creation rate. From 2000 to 2015, young businesses created more jobs than they lost in every year.
This national trend also applies to the Peoria area. Census data on young businesses in the Peoria MSA shows that while older and larger businesses had swings of net job growth and net job destruction, young firms in the Peoria area always produced more jobs than they lost. This data confirms the importance of young firms in our regional economy, and the stabilizing effect of firm creation on the job market and unemployment rates in the Greater Peoria economy.
However, reports from Kauffman and data from the Census also point to a more disturbing trend. Both the Peoria MSA and the U.S. are seeing fewer new businesses created per year. This trend initially came into effect during the Great Recession, and has yet to return to normal at the regional or national level. A lack of confidence in the local and national economy has resulted in fewer entrepreneurs and investors willing to risk starting new businesses, and so fewer new businesses have been created. Previously, the Peoria MSA would produce approximately 500 new firms per year. Since the recession, that number has dropped to around 300. Since firm hiring and death rates remain approximately the same, that has resulted in a lower rate of net-job creation from young firms, resulting in a higher reliance on older firms for job creation. Since older firms see large swings in net job creation/destruction, this effect results in a less stable job market for the region.
Since this is a national trend as well as local, policy will need to be changed at the state and national level to encourage a full rebound in business creation. National confidence in the economy is improving, however, Greater Peoria can position itself as a leader in business development by developing policy and programming to make a more friendly region for entrepreneurs and startups.
Research shows that a prime predictor of startup rates in a region is the level of education of the population (SOURCE). Areas with high college completion and high school graduation rates produce the most entrepreneurs. Programming at the high school and college level encouraging entrepreneurship have been found to be effective at increasing entrepreneurship rates among students (SOURCE). Leveraging resources at the high school and college level to encourage higher educational attainment and to introduce students to entrepreneurship could play a role in producing the new businesses of tomorrow.
Additionally, creating a environment that is friendly to startups and entrepreneurs is vital to increasing entrepreneurial confidence in the region. Currently, Greater Peoria has great resources for entrepreneurial education, assistance, and financing at the regional level, however, there is still a need for local level resources as well as a greater understanding of the needs of area entrepreneurs. A scan of local startups and entrepreneurs could help identify the gaps in entrepreneurial assistance.