2018 New Employer Business Report: National and State Trends

Sameeksha Desai

Bottom Line: The Kauffman New Employer Business Indicators series provides information on new employer businesses, which is a significant indicator of broader entrepreneurial activity. The indicators in this series capture trends in the emergence of these new employer businesses, their representation in the population and among all employer firms, and the time it takes to make a first payroll. There's generally a slowing trend of new employer business activity since before the Great Recession. 

The national new employer business actualization rate, which measures the percentage of all new businesses that make a first payroll within eight quarters of business application, in 2018 was 11.33%. This means that for every 100 new business applications for an Employer Identification Number, about 11 of these businesses became employers within eight quarters.

In 2018, this indicator ranged from 6.59% in Delaware to 17.36% in Washington, with a median of 11.30% across all states. Other states with relatively high rates of new employer business actualization in 2018 included Maine (17.17%), Oregon (15.69%), and California (15.62%). States with relatively low rates of new employer business actualization included Washington, D.C. (6.85%), Georgia (7.83%), and Maryland (7.87%).

At the national level, the percentage of new businesses that became employers within eight quarters decreased by nearly half between 2005, when more than one in five new businesses that filed an application for an EIN became employers within eight quarters, and 2018 when just over 11% accomplished this feat. 

The rate of new employer businesses, which represents the number of new employer businesses that became employers within eight quarters of filing an EIN application per 100 people, was 0.12 in 2018. This means that 120 new employer businesses were formed per every 100,000 people.

This indicator ranged from 0.07 in West Virginia to 0.31 in Wyoming, with a median of 0.17. Other states with relatively high rates of new employer businesses in 2018 included Montana (0.19), Idaho (0.18), and Delaware (0.18). States with relatively low rates of new employer businesses included Ohio (0.07), Kentucky (0.08), and Indiana (0.08).

Nationally, the rate of new employer businesses decreased from 180 per 100,000 people in 2005 to 120 per 100,000 people in 2018, with a low of 110 per 100,000 people between 2009 and 2017. 

The new employer business velocity rate, which measures the speed at which new businesses become employers, conditional on making payroll within the first eight quarters, fell to 1.92 in 2014 (the most recent available data).  This means it took new businesses 1.92 quarters on average from the time they filed an EIN application to make their first payroll.

New employer business velocity ranged from 1.46 in North Dakota to 2.37 in Washington, D.C., in 2014, with a median of 1.83. States with relatively faster velocity included South Dakota (1.47), Missouri (1.53), and Iowa (1.62). States with relatively slower velocity included Florida (2.17), Delaware (2.15), and Maryland (2.11). 

The national new employer business velocity slowed between 2005 and 2014. In 2005, a new business took an average of 1.43 quarters to make a first payroll but by 2014, it took an average of 1.92 quarters.

Employer business newness, which measures the presence of new employers among all employer firms, was 6.8% in 2016 (the most recent data available). This means that new employers were 6.8% of all employer firms.

At the state level, employer business newness ranged from 4.44% in Washington, D.C., to 8.67% in Nevada, with a median of 5.99%. Other states with relatively high employer business newness included Utah (8.30%), Texas (8.13%), and Florida (8.04%). States with relatively low rates of employer business newness included Connecticut (4.45%), Vermont (4.62%), and Hawaii (4.65%).

The proportion of new employers among all employer firms decreased at the national level between 2006 and 2016, from just over 10% to nearly 7% — a decline of close to one-third.

Read the full study HERE

Feature Charticle

Rate of New Employer Businesses (2005-2018)

Kauffman Foundation

Findings:

  • The rate of new employer businesseswhich represents the number of new employer businesses that became employers within eight quarters of filing an Employer Identification Number application per 100 people, was 0.12 in 2018. This means that 120 new employer businesses were formed per every 100,000 people.

  • This indicator ranged from 0.07 in West Virginia to 0.31 in Wyoming. Other states with relatively high rates of new employer businesses in 2018 included Montana (0.19), Idaho (0.18), and Delaware (0.18). States with relatively low rates of new employer businesses included Ohio (0.07), Kentucky (0.08), and Indiana (0.08).

  • Nationally, the rate of new employer businesses decreased from 180 per 100,000 people in 2005 to 120 per 100,000 people in 2018.

Read the full study HERE