Report: After Recession, Metro Areas Are Losing Businesses

Leah Binkovitz | @leahbink | February 16, 2017

Flickr user Elliott Scott.

Since the recession, the number of cities losing more businesses than adding new ones has been consistently higher than in the previous three decades.

The trend, addressed in a new report from the Economic Innovation Group, highlights how the country’s economy shifted in the wake of the recession and has concentrated its growth in a handful of places.

Roughly two-thirds of cities saw a net loss of businesses in 2014. Though some metro areas are still adding more new companies, a smaller number of cities now account for the growth of new business.

Those booming places often stand contrast with their neighboring cities that are losing businesses, according to a report from the Economic Innovation Group.

Amazingly, from 2010 to 2014, just five U.S. metros — New York, Miami, Los Angeles, Dallas and Houston — added the same net number of new businesses as the rest of the country combined.

The decline in new business startups, as well as the uneven distribution of new companies, reveals “an economy quietly being redefined by a lurch toward concentration and stasis—one in which an increasingly narrow swath of firms, people, and geographies power an unprecedented share of the nation’s growth and prosperity,” according to the report, which builds on a previous report.

Though the research notes that the rate of new companies had been steadily declining, after the recession the number of firms closing surpassed the number of companies opening.

Prior to 2008, the vast majority of metros saw more businesses open than close in any given year. “The Great Recession completely inverted this trend, with only 11 percent of metro areas adding firms in 2009,” the report reads.

Economic Innovation Group

Economic Innovation Group

This transformation most immediately impacts jobs, of which the report estimates 924,000 would have been created in 2014 alone, if cities had kept adding jobs at the same rate they did in 2006.

And those most affected by the shift are already disadvantaged workers: young people, under-skilled workers, or unemployed people looking for work. Beyond jobs, the net loss of firms also means fewer people are able to move between cities. That’s problematic because historically, those migrations have helped balance out uneven booms and busts historically.

During the study period, “the country’s most economically distressed zip codes continued to experience a deep and enduring recession while the nation as a whole enjoyed years of recovery,” notes the report.

“These are uncharted waters,” the report continues. “What happens to an economy when new firms become an endangered species?”

Many of the cities with lowest rate of new businesses between 2010 and 2014 are located in Ohio, Pennsylvania and West Virginia. Meanwhile, the select cities in the Sun Belt had some of the highest rates of new businesses in the same time frame, including Las Vegas, Miami, Atlanta, Houston and Los Angeles.

Among the 20 metro areas with the highest startup rate between 2010 and 2014, Houston ranked 14th, adding an average of 8,330 new firms each year. Of course, it also lost an average of 6,760 companies each year, for an average annual net gain of 1,540. Dallas, which ranked just above Houston at 12th, had remarkably similar numbers with a net annual gain of new companies of 1,360.

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Leah Binkovitz

Leah Binkovitz is Senior Editor with the Kinder Institute for Urban Research.

One Comment

  1. Read “Job Creation in the US,” by David Birch. Published in 1975. His stats showed that major corporations laid off 2,000,000 people per year and small business hired 4,000,000. All of the small business didn’t make it but employment grew. Dodd Frank and excessive regulation has curtailed small business creation. The percentage of the economy taken by small business declined for 50% to 38% by last count and employment has also lagged. Institutions are naturally risk averse. The US government is the ultimate “institution.” Ed Cummins

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