America’s Startup Boom: A Sign of Economic Transformation

Four years ago, Americans began creating new businesses at a record rate, according to economist John Haltiwanger, who helped the U.S. Census Bureau track new business creation. This surge in new establishments often signals job creation, innovation, and productivity growth. However, prior to 2020, data showed a decline in business dynamism in the U.S.

In the summer of 2020, Haltiwanger noticed an unprecedented spike in new businesses, which he initially doubted. By November 2020, the boom was confirmed, though there were questions about its sustainability post-pandemic. The trend continued, especially noticeable in online retail, and another surge was observed in 2021.

While some attributed the boom to pandemic-induced circumstances, creating businesses out of necessity rather than opportunity, the trend has persisted beyond the pandemic recovery. Today’s data shows an average of 60% more new businesses each year compared to the pre-pandemic period. These new businesses span both solo ventures and enterprises that potentially provide employment, observed particularly in minority communities, hinting at a lasting impact on long-term productivity growth in the U.S. economy.

Two main drivers of this boom have been identified. The first relates to a population shift following the rise of remote work, leading to business growth in suburban areas rather than downtown business districts, termed the “donut effect.” Suburban areas are seeing new opportunities for food and accommodations businesses.

The second driver is the tech sector, particularly artificial intelligence startups. Unlike suburban reshuffling, tech startups are seen as a continuing wave reminiscent of the 1990s dot-com boom, which significantly enhanced productivity and economic growth.

Haltiwanger and other experts are optimistic. They compare today’s startup surge with past booms, suggesting it could herald significant future productivity gains, making products and services more abundant and affordable and lifting the overall standard of living in the U.S.

Source: Will America’s startup boom transform the economy? : Planet Money.