1. FEDERAL RESERVE BANK OF KANSAS CITY
Entrepreneurship and the Economy
Kelly D. Edmiston
Senior Economist
Entrepreneurship on the Edges, April 26 2018EXTERNAL

2. FEDERAL RESERVE BANK OF KANSAS CITY
Disclaimer
2 EXTERNAL
The views expressed in this presentation are those of the speaker and not
necessarily those of the Federal Reserve Bank of Kansas City or the Federal
Reserve System.

3. FEDERAL RESERVE BANK OF KANSAS CITY
Historical GDP and FOMC Forecast
3 04/26/2018
Source:U.S.BureauofEconomicAnalysis/HAVERAnalytics;
FederalReserveBoardofGovernors
2.6%
2.2%
1.8% 1.8%
2.7%
1.8%
-0.3%
-2.8%
2.5%
1.6%
2.2%
1.7%
2.6%
2.9%
1.5%
2.3%
3.0%
2.6%
2.1% 2.0%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 LR
FOMC Projections
(central tendency)

4. FEDERAL RESERVE BANK OF KANSAS CITY
2.0%
2.2%
2.4%
2.6%
2.8%
3.0%
2.0%
2.2%
2.4%
2.6%
2.8%
3.0%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2018
2017
Consensus Forecasts for 2018
Source:ConsensusForecasts
4

5. FEDERAL RESERVE BANK OF KANSAS CITY
Small Business Statistics
• 93 percent of businesses are microbusinesses
(nonemployer firms and firms with 1–4 employees)
– 80 percent are nonemployer firms
• 73 percent of nonemployer firms have revenue <
$100,000
– 97 percent have revenues < $1 million
• 31 percent of small employer firms have revenue <
$100,000
– 80 percent have revenue less than $1 million
5 04/26/2018
Source: U.S. Bureau of Labor Statistics, Statistics of U.S. Businesses (2014); Emily Wavering Corcoran and Ann Marie Wiersch, 2017, “Small
Business Credit Survey: Report on Microbusinesses, Nonemployer and Small Employer Firms,” Federal Reserve System, November

6. FEDERAL RESERVE BANK OF KANSAS CITY
Employment by Firm Size
6 04/26/2018
Nonemployer Firms
16.4%
1-19 Employees
14.3%
20-99 Employees
13.9%
100-499 Employees
11.8%
500+ Employees
43.6%
Data Source: U.S. Census Bureau, Statistics
of U.S. Businesses

7. FEDERAL RESERVE BANK OF KANSAS CITY
Net Job Creation by Firm Size
7 04/26/2018
2.4%
17.1%
20.7% 21.3% 20.5%
24.0% 21.7%
24.3%
23.7%
21.5% 20.8% 22.3%
20.6%
20.2%
35.1%
23.7% 21.2% 18.7%
20.8% 17.6%
18.3%
38.3%
35.5% 36.7% 39.2%
36.5% 37.8% 39.8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2012 2013 2014 2015 2016
1-19 20-99 100-499 500+
1-19 Employees
17.1%
20-99 Employees
16.6%
100-499
Employees
14.1%
500+ Employees
52.2%
Data Sources: U.S. Census Bureau, Statistics
of U.S. Businesses and Business Employment
Dynamics

8. FEDERAL RESERVE BANK OF KANSAS CITY
Life of a Start-Up
8 04/26/2018
Start-up
Rapid Growth
Failure

9. FEDERAL RESERVE BANK OF KANSAS CITY
Job Growth from Small and Larger Firms
9 04/26/2018
-2,250
-1,510
-4,158
-13,298
2,391
1,674
4,573
13,568
Small
Larger
Closings Contractions Openings Expansions
434
556

10. FEDERAL RESERVE BANK OF KANSAS CITY
Summary: Job Creation by Firm Size
• The majority of workers are employed by large firms
• Net job creation is higher in small firms
• But it is because they are young firms, with many firm births
and firm deaths
– 44 percent of nonemployer firms and 37 percent of small
employer firms (1–4 employees) are less than 5 years old
10 04/26/2018
See John Haltiwanger, Ron S. Jarmin, and Javier Miranda, 2013, “Who
Creates Jobs? Small Versus Large Versus Young,” Review of
Economics and Statistics, 95(2), 347–361.

11. FEDERAL RESERVE BANK OF KANSAS CITY
Global Entrepreneurship Monitor
• Interview data collected in national coordinated effort (100+
economies)
• Two elements of entrepreneurship are covered
– Entrepreneurial behavior and attitudes
– National context
1104/26/2018

12. FEDERAL RESERVE BANK OF KANSAS CITY
Propensity to Become Entrepreneurs
• Low-income – substitution for
less attractive or difficult to find
wage and salary employment;
less (necessity)
• High-income – opportunity to
receive higher earnings,
improve socioeconomic status,
and/or enhancing work-life
balance
12 04/26/2018
Income
PercentSelf-Employed/Entrepreneurs
Necessity Opportunity

13. FEDERAL RESERVE BANK OF KANSAS CITY
Global Entrepreneurship Monitor
• Total entrepreneurial activity is high in the U.S. at 13 percent (of 18–64 in
labor force) compared to 26 innovation-driven economies (IDEs) and stable
• Entrepreneurial intentions are lower in the United States than the IDE
average, but nascent activity levels are higher
• Nascent entrepreneurial employee activity is high in the U.S. at 7 percent
compared to a 5 percent IDE average
13 04/26/2018

14. FEDERAL RESERVE BANK OF KANSAS CITY
Global Entrepreneurship Monitor
• Opportunity motives are higher in the U.S. (88 percent of business starts) relative to
the average for IDEs (78 percent)
• Necessity motive at 11 percent, lower than in 2008 preceding recession (moved
higher in 2009–10)
• Necessity more likely to drive entrepreneurs over 45, although the rate is
comparatively low
• Entrepreneurial activity highest in 35–44 cohort in U.S. but 25–34 cohort in other
IDEs
• 55 percent of Americans (18–64 in LF) report they have the capability to start their
own businesses
14 04/26/2018

15. FEDERAL RESERVE BANK OF KANSAS CITY
Global Entrepreneurship Monitor
15 04/26/2018 0
2
4
6
8
10
12
14
16
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Percentage of 18-64 population who are either a nascent entrepreneur or owner-
managerof a new business

16. FEDERAL RESERVE BANK OF KANSAS CITY
Global Entrepreneurship Monitor
16 04/26/2018
0
10
20
30
40
50
60
70
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Percentage of 18-64 population who see good opportunities to start a firm in the area
where they live

17. FEDERAL RESERVE BANK OF KANSAS CITY
Global Entrepreneurship Monitor
17 04/26/2018
0
10
20
30
40
50
60
70
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Percentage of 18-64 population who believe they have the required skills and knowledge
to start a business

18. FEDERAL RESERVE BANK OF KANSAS CITY
Global Entrepreneurship Monitor
18 04/26/2018
0
2
4
6
8
10
12
14
16
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Percentage of 18-64 population (individuals involved in any stage of entrepreneurial
activity excluded)who are latent entrepreneurs and who intend to start a business within
three years

19. FEDERAL RESERVE BANK OF KANSAS CITY
Global Entrepreneurship Monitor
19 04/26/2018 0
5
10
15
20
25
30
35
40
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Percentage of 18-64 population perceiving good opportunities to start a business who
indicate that fear of failure would prevent them from setting up a business

20. FEDERAL RESERVE BANK OF KANSAS CITY
Contact Information
Kelly D. Edmiston
Senior Economist
Federal Reserve Bank of Kansas City
1 Memorial Drive
Kansas City, MO 64198
kelly.edmiston@kc.frb.org
20 04/26/2018