Job Creation and New Startups in Idaho

New private business establishments (“startups”) are an important driver of employment and economic growth for Idaho as well as the nation. This short report follows up on startup activity in the state and finds continued growth in Idaho startups through 2020 with the startup and entrepreneurship rates above the national average and startup failure rates now on par with the national average. However, startups’ employment footprint has declined, driven by a trend towards smaller new establishments. Additionally, their employment footprint is uneven across industries, with various services, construction and retail trade accounting for almost 70% of total employment by startups in 2019. Moreover, the entrepreneurship rate is negatively correlated with the lagged startup failure rate, with a 10 percentage point reduction in the failure rate associated with two more startups per 1,000 of the civilian labor force. Relative to neighboring states except for Washington, Idaho continues to have higher startup and entrepreneurship rates and is second to Oregon in lowest startup failure rate as of 2018.

The number of startups in Idaho have steadily grown over the past three decades from an estimated 3,249 in 1994 to 6,526 in 2020, as shown in Figure 1. Startup activity is unsurprisingly pro-cyclical with the economy, as evidenced by the dip accompanying the 2001 recession and the large decline during the Great Recession of 2007-2009. Since reaching its recessionary trough in 2010, startups have grown at an average annual rate of 8.74%. (Note that since the reference period for the Business Employment Dynamics Survey is March, the effect of the COVID-19 pandemic and recession was not captured in this time series.)

Figure 2: Startup rate for Idaho and the U.S., 1994-2020

Startups as a share of all establishments – the startup rate – is similarly pro-cyclical, rising as the economy expands and falling as it contracts (see Figure 2). From 1994 to 2007, the startup rate in Idaho hovered between 11%-13%, and since its 2010 trough at about 8%, the rate had risen to about 14% by March 2020.

Figure 3: Job creation by startups in Idaho and the U.S., 1994-2018

As important as the number of startups is, their aggregate employment contribution should not be overlooked. Prior to 2008, startups accounted for roughly 27,900 employed Idahoans a year, but since 2008 have employed about 20,200 (Figure 3). While the number of startups has increased, this decline in startup employment is driven by the trend towards smaller startups as evidenced by their average number of employees, shown in Figure 4.  From 1994 to 2007, startups employed 7.4 persons on average compared with only five in the period 2008-2019. These movements in startup employment and average startup size have mirrored the national trends, with Idaho startups consistently being smaller on average than nationally.

As for which industries are accounting for startup employment, almost 70% were in the following:

  • Accommodation and food service (17.8%);
  • Professional, scientific and technical services (15.6%);
  • Health care and social assistance (12.8%);
  • Construction (12.1%); and
  • Retail trade (11%).

Compared with the national distribution of startup employment, construction and professional services are overrepresented while finance and insurance, information, non-public administration, as well as transportation and warehousing, are underrepresented (Appendix Figure 1A).

Figure 4: Average employment per startup in Idaho and U.S., 1994-2018

Rewards as well as risks: number of startups versus higher startup failure rates

While startups generate many economic opportunities, they do come with risks including higher failure rates. In other words, even if startup activity may be high in a particular year or region, it may be accompanied by high startup failure rates.

Figure 5: Entrepreneurship rate in Idaho and U.S., 1994-2020

As seen in Figures 2, 5 and 6, Idaho has historically had higher-than-average startup rates and entrepreneurship rates – startups per 1,000 of the civilian labor force – alongside higher startup failure rates compared with the country overall. Between 1994 and 2018, the startup rate for Idaho averaged 11.58% compared with 9.71% for the U.S., whereas the average number of startups per 1,000 of the civilian labor force was 5.44 and 4.43, respectively, and the average startup failure rates over the same period were 21.67% and 20.26%, respectively. However, since 2014, startup failure rates in the state have largely matched the national average.

Figure 6: Startup failure rate in Idaho and U.S., 1994-2018

One would expect that as the likelihood of a startup surviving its first year of operations increases, individuals would be more inclined to take the risks involved with starting a business instead of traditional employment. This is borne out in the data by plotting the number of startups per 1,000 of the civilian labor force against the startup failure rate the prior period (see Figure 7). In the case of Idaho, a 10 percentage point reduction in the startup failure rate is associated with about two more startups per 1,000 Idahoans in the workforce the following year. This relationship appears stronger than what is observed nationally, where a 10 percentage point reduction in the startup failure rate is associated with less than one more startup per 1,000 Americans in the workforce.

Figure 7: Entrepreneurship rate vs lagged startup failure rate, Idaho and U.S.

Regional Comparisons

While comparisons against the national averages are useful, perhaps a more informative comparison for Idaho’s startup activity would be against its neighboring states which are more like Idaho in terms of their economic and demographic characteristics.

Figures 8 and 9 highlight the differences in startup rates and entrepreneurship rates among Idaho and its neighbors as well as with the national average, respectively. The region has typically seen both rates above the national average; within the region, Idaho is second behind Washington in terms of the relative intensity of startup activity. The region has seen startup rates and entrepreneurship rates rise from the lows of the Great Recession, following the broad national trend over the same period.

Figure 8: Startup rates for the U.S. Idaho, Montana, Nevada, Oregon, Utah, Washington and Wyoming, 2010 and 2020

Figure 9: Entrepreneurship rates for the U.S. Idaho, Montana, Nevada, Oregon, Utah, Washington and Wyoming, 2010 and 2020Finally, turning to startup failure rates, Idaho has seen a turnaround between having the highest failure rate amongst its neighbors in 2010 to now being second to Oregon in the lowest failure rate as of 2018, with Utah coming in a close third. Except for Wyoming, which saw a modest increase in the failure rate between these years, Idaho followed its neighbors and nation in general with a declining failure rate as the economy recovered from the Great Recession.

It will be interesting to see how Idaho and its neighbors faired in terms of startup activity and failure rates during the ongoing COVID-19 pandemic, relative to one another as well as the nation. Given the varying impact of the pandemic across industries, one would expect states with a larger concentration in accommodations and food service, health care and retail to have a larger exposure to the pandemic’s effects. Unfortunately, business data from the Bureau of Labor Statistics and Census Bureau for the pandemic period have not yet been released.

Source: U.S. Bureau of Labor Statistics – Business Employment Dynamics, author’s own calculations. Number of startups the reference year, less the number of establishments one year old, the subsequent year expressed as a percentage of startups in the reference year.

Appendix

Figure 1A: Share of startup employment by industry in 2019 for Idaho and the U.S.Matthew.Paskash@labor.idaho.gov, regional economist
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