Decline in Young Entrepreneurs

They're seeing through the promises
And all the lies they dare to tell
Is it heaven or hell?
They know very well
--Journey

ZeroHedge summarizes a WSJ article on downtrends in young entrepreneurship. The marquee metric offered as evidence is the % of households headed by someone under 30 with an ownership stake in a privately held business. Although the metric isn't perfect, it suggests that young entrpreneurs have fallen by more than half since the late 1980s.

The article offers psychological reasons as primary culprits. Young adults today are said to have low appetite for risk, low confidence, and high fear of failure--although the article provides little compelling rationale for why this is so.

The article could have focused on more intuitive explanations. One is the voluminous research that shows entrepreneurs typically do not start new businesses straight out of school. Rather, entrepreneurs first go to work for established firms where they come to identify entrepreneurial opportunities that motivate them to subsequently strike out on their own. The problem is that young people have been bearing the brunt of fewer employment opportunities for years, meaning that they are less likely to gain initial industrial experience that facilitates entrepreneurial opportunity recognition.

Higher entry barriers are also to blame. Large businesses have been partnering with government to protect their franchises against competitive assault, resulting in more concentrated industry structure. Moreover, increased regulatory burdens impose high start-up costs that discourage entrepreneurial entry.

Finally, lower savings rates have reduced propensity for young entrepreneurship. Less savings means less capital to fund entrepeurial ideas. Business startups decline as a result.

Borrowing more and saving less is perhaps the stiffest wind blowing in the face of young would-be entrepreneurs.