Business Dynamism in High Tech (Issue Brief)
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Contents
Abstract
This issue brief examines the business trend in the high-tech sector and explores the reason of declining number of start-ups in the sector.
Resources
Definition of High-Tech Sector
- The group of industries with very high shares of workers in the STEM occupations of science, technology, engineering, and math.
- Formal definition: According to a Bureau of Labor Statistics study published in 2005 that followed an interagency seminar aimed at classifying high-tech industries, a high-tech industry is defined by the presence of four factors: a high proportion of scientists, engineers, and technicians; a high proportion of R&D employment; production of high-tech products, as specified on a Census Bureau list of advanced technology products; and the use of high-tech production methods, including intense use of high-tech capital goods and services in the production process.[1]
Measurement of Business Dynamism
- Job creation
job creation reflects a net addition of employment at a particular business through one of two channels—the expansion of employment at an existing business establishment or the birth of a new one in a particular year.
- Productivity growth
Relevant Reports
Job Creation and Destruction Annual job creation reflects a net addition of employment at a particular business through one of two channels—the expansion of employment at an existing business establishment or the birth of a new one in a particular year. Job destruction reflects a net loss of employment—when an existing business either contracts employment or closes its doors.
Analysis: The high-tech boom in the second half of the 1990s, with a high pace of job creation and a slightly increasing rate of job destruction during this period. The spike in job destruction in 2001 to 2002 period is associated with the well-known dot-com bust. The slowdown in the overall pace of job creation and destruction in the post- 2002 period, is evident in the declining trends of both job creation an job destruction.
Young High Tech Firms
Analysis: The number of young high-tech firms increased considerably during 1982 to 2000 and starts to decline after 2000. For the private sector as a whole, young firms held steady throughout much of this period and start to decline after 2008. The slope of decline for high tech sector is slightly deeper compare to the total private sector.
Entrepreneurship Rate
The entrepreneurship rate in the high-tech sector has declined significantly despite the actual increase in absolute numbers during the same period. The high-tech entrepreneurship rate fell from a high of nearly 60 percent in 1982 to a low of 38 percent by 2011.
Conclusion: The pace of business dynamism, as measured by the pace of job reallocation, has declined in the high-tech sector in the post-2002 period at a pace that exceeds that of the overall economy.
