Economic Competitiveness: Economic Innovation
Innovation is largely a matter of repeatedly trying new things. One sign of this is the number of gross new jobs created. Traditional employment data series report only the net job growth — i.e., job creation minus job destruction.
Average Job Creation Rate, 2001-2004 Q2
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(QWI Online). This new series of data based upon a partnership between the states and the
Census Bureau. Because of its relative newness, the states of Utah and Nebraska do not yet report.
A new data series from the Census Bureau is the first to provide job creation data on a metropolitan basis. During the period since 2001, the Kansas City region's job-creation rate (job creation divided by total jobs) places it in the middle of its peers. However, at 5.5 percent, it is significantly behind Denver or Minneapolis.
Job Churn
Not just job creation matters. As the famous Austrian economist Joseph Schumpeter postulated, technological progress is created in a market economy by a process of “creative destruction.” That's because the ability to slough off underperforming jobs and firms is as important as creating new ones to generate the incentives that spur innovation.
Job Churn Rate, 2001-2005 Q1
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Job churn, which is the rate of job creation plus the rate of job destruction, is more closely aligned with this concept. The overall message is unchanged from the prior chart, however, with Kansas City significantly underperforming Denver and Minneapolis while being roughly equal with the remainder of its peers.
On the other hand, Denver's lead in “creative destruction” appears to be eroding as its job churn rate fell over the period from an average of about 16 percent to 13 percent while Kansas City's has remained more or less constant at 10 percent.
Business Formation Rate
A major source of new ideas and products is the creation of new firms. Using a business establishment database derived from Dun & Bradstreet, it is possible to examine the number of gross new businesses created each year.
Business Formation Rate Annual Average, 2000-2004
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of each year as a percent of total businesses. These rates were then averaged over the 5 years of data.
Calculated again as a rate (new businesses divided by total businesses), the Kansas City area's rate of business formation is near the bottom of its peers. Also included in this bottom group are Omaha, Indianapolis and St. Louis.
Austin, Denver and Salt Lake City lead the peer group, with Austin's business formation rate nearly double Kansas City's.
Entrepreneurial Activity
The Kauffman Foundation recently published a new report on entrepreneurial activity that is perhaps the most sensitive yet in detecting new firm activity. Using monthly household survey data from the Census Bureau, it estimates the average percentage of individuals who start a business each month.
Entrepreneurs per 100,000 People, 2005
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Kauffman Foundation, Robert Fairlie, Chief Researcher.
In Kansas, for example, 0.25 percent of individuals, or 250 individuals per 100,000 people, start a business each month. In Missouri, the corresponding rate is 190 individuals per 100,000 people.
Missouri's rate ranks last among the states containing Kansas City's peer metropolitan areas. Kansas's rate is higher only than Nebraska's and Missouri's. The leader is Colorado, with an entrepreneurship rate more than double that of Kansas.
According to the foundation, the data in the chart above was developed as follows: “In order to create the Kauffman Index, all individuals ages 20–64 who do not own a business as their main job are identified in the first survey month. By matching CPS files for the following month, it is then determined if these individuals own a business as their main job with fifteen or more usual hours worked per week in the following survey month.
The index is thus defined as the percent of the population of non-business-owning adults who start a business each month. These monthly rates of entrepreneurial activity are averaged to calculate an average monthly estimate for each state for the year.”
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