Posted on 10/12/2023 by Beverly Kerr
- New businesses formed in the Austin metro reached a new peak of 4,845 in 2021.
- Austin’s startup density, 206 per 100,000 population, is 144% of the national rate, and ranks seventh among the 50 largest metros.
- With jobs at new firms accounting for 2.6% of all jobs in 2021, Austin ranks 3rd among major metros for startup job creation.
- While Austin outperforms nearly all metro economies, it is not isolated from the long-term downward trend in the business formation rate seen nationally over the last few decades.
New business formation in Austin climbed to 4,845 in 2021, exceeding 2020 by 6.6%. Nationally, 476,071 new firms formed in 2021, up by 4.2% from 2020.
Austin ranks 21st among major metropolitan areas for number of new businesses created in 2021, a position higher than where the metro ranks in 2021 based on the size of its population (28th) or its economy (22nd).
Among the top 50 metros, 37 saw an increase in business creation in 2021, up from 25 metros with positive growth in 2020. Growth in new firm births in 2021 was 10.7% in Dallas-Ft. Worth, 8.4% in Houston, and 7.5% in San Antonio.
This data comes from the U.S. Census Bureau’s release in September of new data from the Business Dynamics Statistics (BDS) program. The BDS has become an important tool providing insights about business formation and growth, labor market dynamics, and other features of the economy crucial to understanding current and historical U.S. entrepreneurial activity. BDS is based on the Census Bureau’s Longitudinal Business Database of the universe of employer companies (not a sample survey) and tracks economic activity at both the firm and establishment level over a long period of time. BDS tracks the annual number of new businesses (startups and new locations), and tracks creation and destruction of jobs at the establishment level by firm age, size, and industry, (based on the March 12 payroll period of a given year) providing a picture of the dynamics underlying aggregate net growth in employment.
The number of new U.S. firms created annually has not regained pre-Great Recession levels—2021 is 12% below the peak attained in 2006 (541,738). Austin’s number of new firms grew each of the last 12 years and has exceeded Austin’s pre-Great Recession peak (2008) since 2012. The 4,845 new firms created in Austin in 2021 exceeds the metro’s pre-Great Recession peak by 49%. Dallas-Ft. Worth’s number of new firms created in 2021 exceeds its pre-Great Recession peak by 30%, while Houston is up by 27%, and San Antonio is up by 11%.
Although the number of business starts could be said to have recovered in Austin by 2012, on a per capita basis, new firms may be just beginning to form at the rate they were before the Great Recession. Austin saw over 200 new businesses per 100,000 population each year from 1978 to 2000. Rates faltered following the 2001 “dot com” recession, which hit Austin harder than much of the rest of the country, and stayed below 200 since the Great Recession—until this year. Austin’s current per capita rate of business formation, 206 per 100,000 population, is 25% above its 2010 low point. Nationally, new businesses formed per 100,000 population in 2021 is 17% above 2010 and Texas is 22% above.
Over the pre-Great Recession decade, the rate of business formation in Austin averaged 122% of the national rate, but has been increasing and, in 2021, Austin’s startup density is 144% of the national rate. Austin has the seventh greatest startup density among the 50 largest metros in 2021 and, based on 2017-2021, Austin ranks fifth.
In the Austin metro in 2021, new establishments created 52,730 jobs and these new establishments included both startups (firms less than 1 year old) and new establishments of existing firms of varying ages. Expansions at existing establishments created another 77,657 jobs.
Startups accounted for 23,084 or 44% of the 52,730 new establishment jobs created in 2021. The rate was also 44% nationally and 45% for Texas in 2021.
The share of employment in new and young firms is also a key startup density measure. New and young firms account for a larger share of job creation than they do of employment and, as the graph below illustrates, in Austin, they account for greater shares of both employment and job creation than they do in the nation as a whole.
In 2021, 4,845 startups accounted for 23,084 new jobs, representing 2.6% of all jobs in the metro, up from 2.5% in 2020. Among the 50 largest metros, Austin ranked third for the percent of jobs created by startups in 2021. Nationally, startups accounted for 1.7% of all jobs in 2021 and in Texas, the share was 2.0%.
Each perspective on business entry and job creation provided in the BDS dataset is also available for business exits and job destruction. In 2020, 5,434 establishments exited in Austin, representing 10.4% of businesses. This is up from 9.6% in 2020. Nationally, the 2021 exit rate is 10.5%, up from 9.5% in 2020.
Nationally, close to a quarter of new businesses exit within their first year. The current BDS release does not provide the same firm age detail at the metro level that it does at the national level. But it does provide detail for young firms, that is, those 1 to 5 years old. In 2021, 16.4% of establishments of young firms exited in Austin. Nationally, the rate for young firms was 17.3%. In Texas’ other major metros, the rates ranged from 16.1% in Dallas-Ft. Worth and Houston to 17.0% in San Antonio.
The graph below summarizes jobs created by new businesses and continuing businesses and jobs destroyed by businesses closing and continuing businesses laying off jobs in Austin.
In Austin in 2021, 130,288 jobs were created—52,730 by new businesses and 77,558 by continuing existing businesses. At the same time, 155,859 jobs were destroyed—43,642 by businesses closing and 112,217 as layoffs by continuing businesses. The net result is negative net job creation of 25,571 (2.8%) in 2021. In 2020, net job creation was 20,981 and the net job creation rate was 2.3%.
In Austin in 2021, the professional, scientific, and technical services industry saw more establishment births (1,507) and exits (1,001) than any other industry. Nearly uniformly, industries in Austin saw more establishment births in 2021 than exits. However, job creation and loss by industry in 2021 shows the impact of the pandemic. While six major industry groups saw more job creation than destruction, ten industries experienced the reverse. In the accommodation and food services industry, new and expanding establishments created 14,867 jobs, but closing and contracting ones eliminated 34,473 jobs.
Excluding the very small natural resources and mining sector, Austin businesses in the arts, entertainment, and recreation industry were most likely to go out of business in 2021. The establishment exit rate was 15.6% in 2021, the highest rate seen in the industry since the early 2000s dot-com recession. Nationally, the 2021 establishment exit rate for the industry was 16.3%.
The Census Bureau began producing “experimental data products,” treating topics like globally-engaged firms and innovative firms. One produced following last year’s BDS release focuses on the high tech sector. High tech is made up of 11 manufacturing and nonmanufacturing industries employing high concentrations of science, technology, engineering, and math (STEM) occupations. These tables currently provide indicators for the high tech intensity of metropolitan areas through 2020.
Among the top 50 metros, Austin ranks fourth for high tech jobs as a percent of all jobs in 2020. Nearly 3,600 high tech firms employ 111,740, or 12.0% of all jobs, in Austin. Only San Jose, Washington, and San Francisco have greater high tech employment intensity. More than four decades of data reveal that metro areas exhibit different patterns of high tech employment intensity over time.
The share of establishment entrants in the high tech sector shows notable growth over time among the major metros with the greatest high tech employment intensity. Among the top 10, these five registered the largest rates of high tech firms among new establishments in 2020. In Austin in 2020, 8.9% of new establishments are high tech.
Another trend with a defined direction is the high tech entry rate. This rate represents the share of high tech establishments in a metro that are entrants. Among the top 10 major metros for high tech employment intensity, Austin’s 26.2% high tech establishment entry rate is the highest in 2020. According to the Census Bureau, “Despite significant differences in the share of new establishments that are in the high tech sector [graph above], there has been a declining share of high tech establishments that are entrants [graph below] and a rising share of high tech activity among older establishments. Over time, fewer and fewer of the high tech establishments in these MSAs are newly formed entrants.”
More: these four graphs illustrate shares of employment and job creation/destruction by firm employment size and disaggregate job creation by firm employment size for new and for expanding establishments.
For additional information on the evolution of job growth and employment at U.S. firms over the last 40 years with respect to firm age, size, and industry, there are two recent Census Bureau publications:
Business Dynamics Statistics Trace Evolution of Job Growth, Employment at U.S. Firms Over Four Decades, Feb. 2022
The Business Dynamics Statistics: Describing the Evolution of the U.S. Economy from 1978-2019, Oct. 2021
- That is, peaks reached in the decade immediately preceding the last recession and excluding peaks of the 1980s.↩
- During the 1980s, Austin saw an average of 305 new firms per 100,000 population created each year. In the 1990s, the average was 234.↩
- Because of the relative size of the industry in Austin (2,265 jobs in 2021) and for the sake of simplification of the graphs, mining was not included in the industry graphs.↩