This analysis article includes updated data from an article published on this blog in January 2022, “Job Creation and New Startups in Idaho”
New private establishment formations
Idaho had considerably more startups relative to the local labor force than the nation overall, with the years 2010 through 2012 being one notable exception. Unlike past business cycles, the pandemic saw many Idahoans and Americans starting businesses as opportunity costs fell. Work furloughs and layoffs initially reduced employment opportunities and low interest rates lowered the threshold return on investment for prospective business ventures.
By 2022, there were more than 10 new private establishments in Idaho for every 1,000 Idahoans in the labor force. Nationally, it was over six new private establishments for every 1,000 Americans in the labor force.
Between 1994 and 2022, the annual number of new private establishments in Idaho (i.e., those less than a year old since opening) grew from 3,249 to 10,088, a 210.5% increase or about 4.1% on an annual basis. By comparison, the number of new establishments nationwide grew 87.3% or about 2.3% on an annual basis. This can be seen in Figure 1, with Idaho plotted along the left vertical axis and the United States along the right.
Generally, the formation of new private establishments has tended to be pro-cyclical — rising in economic booms, falling during recessions. Both the state and nation experienced declines in the number of new private establishments during the recession in the early 2000s and, more prominently, again during the Great Recession (2008-3009). However, growth rates within Idaho and across the country ramped up during the pandemic despite a deep contraction in economic activity in 2020. This exception to the rule could be attributable to the unique set of circumstances of the time that reduced the opportunity cost of starting a new business for many individuals, mainly a lack of employment opportunities due to large furloughs of the workforce. In addition, successive rounds of household stimulus payments and cheap credit allowed many new businesses to get off the ground. Continue reading