Idaho’s new business establishments have added more than 10,000 private sector jobs per year over the past two decades, accounting for between 20 to 30 percent of private sector gross job gains and nearly all net private sector job growth. Since the end of the last recession, the share of private sector new businesses in Idaho’s economy has risen faster than surrounding states and the nation as a whole, growing from 7 percent of all establishments in 2010 to more than 11 percent in 2016. Job creation by these private startup businesses, however, remains in decline.
Idaho startup rates and failure rates are higher than national averages
In Idaho, as with the rest of the nation, the rise in the number of businesses entering the economy was significantly stymied by the most recent recession that started in December 2007. At the end of the first quarter of 2010, the number of establishment entries in Idaho had sunk to less than 3,000 from its prerecession peak of 5,073. Since then, the downward trend reversed and establishment entries have returned to pre-recession levels.
The growth of new businesses in Idaho since 2010 has been rapid. The state entrepreneurship rate – the number of startup establishments per 1000 persons in the labor force – has shown substantial growth, from 3.8 following the last recession in March 2010 to 6.1 in March 2016. This growth has placed Idaho with an entrepreneurship rate higher than its surrounding states and the national average.
Startup rates in Idaho (new establishments as a share of total establishments) have been on the rise in Idaho since 2010. At the end of first quarter of 2016, Idaho startup rate was 11.1 percent – less than the pre-recession high of 12.1 percent but still higher than the national rate of 9.4 percent.
While this recent growth holds promise for the future, new businesses represent a declining share of the business community when observed over longer time scales. Census estimates for total establishment entry rates were as high as 20 percent in Idaho and 17 percent nationwide in 1977; as of 2014, entry rates were down to 11 and 10 percent respectively.
Along with higher entry rates in recent years, Idaho has higher failure rates of new businesses when compared to the national average. The share of new business failing in their first year was 23 percent in 2015 – 3 percent higher than the national average.
The average startup size in Idaho is declining slower than national trends
As is the case with national trends, the largest share of jobs created by these new establishments were in the broad leisure and hospitality industry, which includes restaurants, food trucks, hotels and even country clubs. In contrast with national trends, Idaho startup jobs have a comparatively larger share of jobs in construction, education and health services, manufacturing and mining – a reflection of the core competencies of the state.
The different industry makeup of startup jobs in Idaho is perhaps one reason why job creation trends in Idaho do not show the clear declining trajectory observed in national trends. Jobs created by new establishments have fallen nationally by more than 1 million jobs between 1994 and 2016. In Idaho, job creation has risen over that time frame with steep declines only during economic recession periods.
The average number of jobs created by each opening establishment (total number of jobs created by new establishments divided by total number of new establishments) is however declining both nationally and statewide with Idaho declining at half the national rate. Startup companies increasingly require fewer people. One reason for this is technological advancements that benefit all establishments in general and new startup enterprises in particular.
Idaho startups have a comparatively high entry rate, which is great for the economy; that failure rates are comparatively higher is not necessarily a negative either. New companies often enter the marketplace with new ideas on how to improve a product or service, and every failure provides information to other businesses and subsequent startups about what does not work. The declining job creation potential of startup businesses is however a concern that Idaho shares with the rest of the nation. If this trend continues, job creation in Idaho will become increasingly dependent on existing businesses which are by nature less innovative.
Esther.Eke@labor.idaho.gov, regional economist
Idaho Department of Labor
(208) 236-6710 ext. 4331