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California plunges to bottom in new business creation

From 2001 to 2009, it ranked first or second. But last year it lost 4,600 businesses.

August 24, 2011|By Alana Semuels, Los Angeles Times

From 2001 to 2009, California ranked either first or second in the nation in creating businesses. But last year, the state plummeted to 50th as it lost 4,600 businesses, according to a study by Economic Modeling Specialists Inc.

California was among 29 states that saw a drop in net new businesses, according to the study, which calculates net new business creation by using the quarterly employment and wage information from the Bureau of Labor Statistics.

Three years ago, California ranked first, with 32,829 net new businesses established. Though the number sank to 12,529 during the worst of the recession two years ago, the state still ranked first, ESMI said.

But last year, amid continuing high unemployment, California lost 4,632 businesses from the prior year, the study found. Only Michigan, among the states and the District of Columbia, ranked worse.

Washington state took over the top spot last year by creating 8,315 net new business establishments.

Entrepreneurs often complain about stringent environmental regulations and government red tape in California as obstacles to doing business. Those things become more of a burden during bad economic times, said Hank Robison, chief economist at EMSI.

"If the economy is doing well, it seems like those things that might otherwise inhibit new business formation can be overcome," he said. "When the tough times hit, those things become binding."

California's unemployment rate last year hovered around 12.4%. High unemployment rates often can help business creation because the cost of labor is so low, said Tim Nadreau, research economist at EMSI.

In California's case, he noted, high unemployment didn't seem to motivate entrepreneurs to create businesses.

alana.semuels@latimes.com

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