Bureau of Business Research
Date of this Version
Business in Nebraska, September 2012, (67)704: 20 pages
STATE ENTREPRENEURSHIP INDEX
Unemployment rates and job growth are popular measures for state economies. However, these trends may differ from the state’s performance in core measures of underlying economic strength such as entrepreneurship, net migration and capital formation. Given this, the University of Nebraska - Lincoln Bureau of Business Research seeks to track these core economic measures in Nebraska and in all U.S. states.
The State Entrepreneurship Index is one effort to track these core trends. Specifically, the index is used to track entrepreneurship in all 50 states. The index was initially developed by Eric C. Thompson and William B. Walstad in Entrepreneurship in Nebraska: Conditions, Attitudes, and Actions (Gallup Press, 2008). In the current study, we use the same methodology to and calculate the value of the state entrepreneurship index for 2010 and 2011.
The index is composed of 5 components that consider the income of entrepreneurs, business formation rates, technological innovation, and growth in the number of entrepreneurs.
The five components of the State Entrepreneurship Index are:
- Percent growth in employer establishments
- Percent growth in employer establishments per person
- Business formation rate (i.e, establishment births per person)
- Patents per thousand persons
- Average income per non-farm proprietor
A separate index value is calculated for each of the 5 components. Each component index reflects how much each state’s performance deviates from the median state. The state at the median gets a value of 1.0. A state with a value one standard deviation above the median gets a value of 2.0, while a state one standard deviation below the median gets a value of 0.0. The overall entrepreneurship index is calculated by taking a simple average of the five component index values for each state.
The data utilized to calculate values for each of the 5 index components are presented in Table A.1 through A.5 in the appendix. Data are present from 2005 through 2011. The analysis focused on the two most recent years, 2010 and 2011. Note that the 5 components of state entrepreneurship index are the same that have been used in previous years, with one exception. In particular, the current report utilizes income per non-farm proprietor (including sole proprietors and partners) as its measure of the size of entrepreneurial ventures in the states. In the last two index reports, gross receipts per partner or proprietor were used instead. While the gross receipts measure is preferred, the Internal Revenue Service is no longer calculating data on gross receipts for proprietorships and partnership by state1. This implies that values for the state entrepreneurship index in this report for 2008 and 2010 may differ somewhat from values presented in earlier reports. Values also may differ due to periodic revisions in the underlying data by the U.S. Department of Labor, the U.S. Department of Commerce, and the U.S. Patent and Trademark Office.
Table 1 illustrates component index values for all 50 states for the year 2011. The Table also shows the overall index value. Data on the number of employer establishments comes from the establishment counts in the Quarterly Census of Employment and Wages developed by the U.S. Bureau of Labor Statistics within the U.S. Department of Labor. The counts include all establishments that participate in their state unemployment insurance program. Data on the population of states, which is used in all person measures, is from the U.S. Census based on estimated population on July 1, 2011. Data on firm births is from the Business Employment Dynamics database, also developed by the U.S. Bureau of Labor Statistics. Data on patents is collected by the U.S. Patent and Trademark Office. Data on non-farm proprietor income and proprietor counts for each U.S. state is from the Regional Economic Information System of the Bureau of Economic Analysis, which is part of the United States Department of Commerce.
Table 1 shows the ranking for all 50 states both for the state entrepreneurship index overall and for each of the 5 index components. The highest ranked states in the 2011 State Entrepreneurship Index are concentrated in the northern parts of the country. The five highest ranked states are Massachusetts, North Dakota, California, New York, and Minnesota. We note that Oregon, New Jersey, New Hampshire, and Illinois are also among the Top 10.
STATE RANKS 2010 AND 2011
GROWTH IN ESTABLISHMENTS PER PERSON
THE BUSINESS FORMATION RATE 2010 AND 2011
PATENTS PER THOUSAND PERSONS 2010 AND 2011
INCOME PER NON-FARM PROPRIETOR 2010 AND 2011
Our Thanks …
The Bureau of Business Research is grateful to The Jim and Penny Krieger Family Foundation for sponsoring the original research allowing us to develop the State Entrepreneurship Index.
Copyright 2012 by Bureau of Business Research, University of Nebraska-Lincoln. Business in Nebraska is published in four issues per year by the Bureau of Business Research. Inquiries should be directed to Bureau of Business Research, 347 CBA, University of Nebraska–Lincoln 68588-0406. See the latest edition of Business in Nebraska at http://www.bbr.unl.edu
Copyright 2012 by Bureau of Business Research