economy

End of the 'gig economy?' Entrepreneurship fell in 2013, thanks to job growth

April 9, 2014: 12:01 AM ET

Fewer Americans are launching new ventures out of necessity, a new Kauffman Foundation report shows.

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FORTUNE -- In Silicon Valley, people start companies to change the world. In the rest of the country, it's out of necessity.

That's why new business creation fell in 2013, according the Kauffman Foundation's annual Index of Entrepreneurial Activity. With unemployment at its lowest level since 2010, out-of-work people who might have started their own companies have simply found jobs instead. As a result, only 280 out of 100,000 adults started businesses in 2013. That's down from 300 out of 100,000 in 2012, according to the report.

Compared with other years, the change is "very dramatic, and probably reflective of the severity of the recession," says Dane Stangler, VP of Research and Policy at the Kauffman Foundation, a non-profit group focused on entrepreneurship and education.

The foundation's report looked at a wide range of businesses, from high-tech startups to self-employed individuals. The latter group includes what Stangler calls "marginal entrepreneurs" -- people who've become self-employed only until the labor market improves. They don't necessarily share Silicon Valley's "change the world" ideal.

The report also shows entrepreneurship as a necessity is a universal phenomenon. Surprisingly, high-tech entrepreneurship actually fell in Silicon Valley during the dot-com boom of the late 90s because so many large tech companies were also hiring thousands of workers. After the bust in 2000, massive layoffs at those tech firms led to a jump in new business creation that lasted for years, Stangler notes.

MORE: Can St. Louis become the next tech hub?

A drop in new businesses creation might also show that the so-called "gig economy" -- where out-of-work and underemployed Americans cobble together a living by running an Etsy shop, driving a Lyft cab, working as a TaskRabbit or renting their apartment on Airbnb -- might have been temporary. After all, it's not an easy life: A recent Fast Company story outlined the ways this kind of existence is hard work and offers few rewards. As soon as a full-time job becomes available, "gig economy" workers are very likely to give up their lives as hustling recessionistas.

Another factor is the survival rate of new businesses, which has declined over the past five to six years, Stangler says. Historically, around 50% of new businesses lasted five years, but that has dipped into the low 40s this cycle, he notes. "If you assume people have been forced into (starting a business due to unemployment), they may be starting lower quality companies," he says.

But non-survival isn't necessarily bad news for the economy: Those new businesses might have closed up shop because their owner landed a better paying job.

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