© Copyright 2003 by the Wyoming Department of Employment, Research & Planning
Wyoming New Business Formation in 2000 and 2001
by: Sherry (Yu) Wen, Senior Economist
“In 2001, 2,072 new firms started business in Wyoming, up from 2,007 in 2000. This marks the highest level of new business formation since 1993. These numbers indicate that Wyoming’s new business formation did not slow during 2001 while the national economy was in a period of decline.”
The U.S. economy started to slow in mid-2000 and went into a recession in
March 2001. How has this national recession affected new business formation in
Wyoming? Research & Planning (R&P) has tracked new business formation in Wyoming
since 1993 and published related research every two years.1
Presently, R&P has nine years of data, which enables us to address new business
formation issues in more detail (i.e., at the county level).
Geographical Distribution and Impact of New Firms2
In 2001, 2,072 new firms started business in Wyoming, up from 2,007 in 2000 (see Figure 1 and Table 1). This marks the highest level of new business formation since 1993. These numbers indicate that Wyoming’s new business formation did not slow during 2001 while the national economy was in a period of decline. New firms brought 8,207 jobs3 and $100 million in wages to the State in 2000; and 9,452 jobs and $124 million in wages in 2001. Laramie, Natrona, and Teton counties attracted the largest numbers of new businesses in 2001 (see Table 1). Laramie County obtained 290 new firms (or 14.0% of the State’s total), 1,970 associated new jobs, and $18 million in wages. Natrona County gained 203 new firms (or 9.8%), 858 jobs (less than half of Laramie’s), and $9.8 million in wages. The figures for Laramie and Natrona counties indicate a change from the previous analysis covering 1998 and 1999 when Natrona County gained more new businesses than Laramie County. Teton County brought in 190 new firms (or 9.2%), 645 jobs, and $13.7 million in wages. Teton County had one-third as many new jobs as Laramie County, but 76.0 percent of Laramie County’s associated wages. Niobrara County had the lowest level of new business formation, only gaining six new firms in 2001 and 19 associated jobs with $60,000 in wages.
How does new business formation impact the local economy? This issue can be addressed in different ways. Table 1 lists three impact indicators. First, the new business formation rate4 shows what proportion of businesses are “new blood” to the local economy. It also indicates the speed of new business development in the area. Second, the employment impact5 indicates what percentage of jobs is attributable to the new start-ups. Third, the wage impact6 shows how much new hires contributed in total wages to the community. The original number of firms and differing employment and wage levels have a significant influence on the three impact indicators. As a result, the counties that obtained more new firms do not necessarily show larger impacts on the economy, and vice versa. New business formation impacted Johnson County the most in 2001. Fifteen percent of its businesses were new during the year. Those new firms accounted for 8.0 percent of Johnson County’s total employment and 4.1 percent of total wages. In comparison, the counties with the greatest number of new businesses showed smaller economic impacts from their new firms. Laramie County had an 11.1 percent formation rate with a 5.4 percent impact on its total employment and a 1.8 percent impact on its total wages. Teton County showed a 10.2 percent formation rate with a 3.9 percent employment impact and a 2.9 percent wage impact. Natrona County had a 7.4 percent formation rate with a 2.7 percent employment impact and a 1.1 percent wage impact. Overall, in 2001 the State experienced an average formation rate of 9.7 percent. New firms in Wyoming contributed 4.0 percent to total employment and 1.9 percent to total wages.
Industry Distribution by County
Historically, Services and Construction are the two industries that experience most new business formation in Wyoming (see Figure 2). This trend continued in 2000 and 2001. In 2001 more than half of all new firms (55.6%) were in one of these two industries, 763 firms (36.8%) in Services and 389 firms (18.8%) in Construction. As usual, Retail Trade contains the third largest percentage of new firms (13.4% in 2000 and 12.5% in 2001). However, this industry has shown a continuing decrease in new firms. The most notable movement in recent years was in the Mining industry. After five years of steady increases (18.6% average annual rate), the Mining industry experienced a large jump (50%) in 2001. The gain of 158 new Mining firms may in large part reflect coal bed methane development.
Where did most new Mining firms locate? How were industries’ new firms distributed among counties? What was the proportional gain by industry for each Wyoming county? Table 2 provides detailed information on where new business formation occurred. Despite combining 2000 and 2001 data, many industry-specific numbers are not disclosable due to confidentiality. Table 2 shows that more than half of the 263 new Mining firms (137 or 52.1% of the State total) were located in the Northeast region, and about one-third (82 or 31.2% of the State total) were in Campbell County. Natrona County was second with 27 new Mining firms (10.3%), followed by Johnson (8.7%), Sheridan (8.4%), and Sweetwater (6.8%) counties. Park County had the largest share of new Manufacturing firms (17 or 12.3%), while Laramie County attracted more new firms (34 or 13.4%) in Transportation, Communications, & Public Utilities (TCPU). Consistent with Statewide trends, Services contributed the largest proportion of new firms to most counties followed by Construction. Exceptions were Campbell County, with its largest proportion (25.2%) in Mining, and Big Horn County, which had most of its new firms (32.7%) in Construction.
New Business Survival Rates by Industry and Location
We discussed how many new firms started business in Wyoming in 2000 and 2001. Now we will examine all new firms since fourth quarter 1992 to see if they are still in business or to determine how many years they survived. In this research, we only look at the survival of the business under the original owner. In other words, if a firm was sold to another owner(s) it is considered closed, even if it continues the same type of business.
Figure 3 shows that the survival rate of new firms decreases as the years in business increase. A little over two-thirds of new firms survived after one year in business. In general, firms in Agriculture and Finance, Insurance, & Real Estate (FIRE) had a much higher chance of survival than firms in other industries. On the other hand, Construction firms had a much lower chance of survival. Construction firms largely depend on short and temporary project contracts. Firms are also restricted by weather.
Table 3 presents one- and three-year survival rates by county. Multi-county firms showed the highest survivability in Wyoming, 88.0 percent were still in business after one year and 64.0 percent were still in business after three years. Statewide, the survival rates were 67.6 percent and 43.4 percent, respectively. Firms in Washakie and Sublette counties had the second highest survival rates, with at least 76 percent of firms surviving one year and 50 percent beyond three years. A firm’s survival depends on many factors, particularly location and type of industry. For example, Table 4 shows that the Central region was the best location for agricultural firms, which had a 62.7 percent survival rate after three years in business, compared with the Southwest region with only 47.6 percent. The Northwest region may be the best location for new businesses in TCPU; more than half of these firms (55.0%) survived at least three years, compared to the Central region with only 35.6 percent survival.
An increasing number of new firms started business in Wyoming in 2000 and 2001. This indicates that Wyoming’s new business formation had not slowed down by the end of 2001, even though the nation was in a recession. Compared to other industries in 2001, the Mining industry had the most significant over-the-year increase in new firms. Both Washakie and Sublette counties had new business survival rates surpassing the Statewide average.
1Sherry (Yu) Wen, “An Update on New Business Formation in Wyoming,” Wyoming Labor Force Trends, January 2001, pp. 1-10.
2New firms or new business in this study did not include the new branches or the successors of old existing firms following ownership transfer. In addition, only those new firms that reported paying wages to their employees were included.
3New jobs in this research reflect the highest average quarterly employment during the first two quarters of business. Since many firms opened in the second or third months of a specific quarter, using the quarter’s average employment (total quarterly employment divided by three months) cannot show their actual initial employment level.
4New business formation rates are the number of new firms (new Unemployment Insurance [UI] accounts) divided by the total number of employing units (existing UI accounts and all of their associated physical locations, e.g., chain stores).
5The employment impact is the number of jobs brought by the new firms divided by the total employment in a given area.
6The wage impact is the total amount of wages contributed by new firms divided by the total wages in a given area.
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