*5.1. New Business Survival Rate 2010*

Wage and salary income risk–return (WSI) portfolios were found to play a significant role in the survival of new businesses in 2010 in MSAs. These are the businesses that were born in 2005–2006.

Similar to the wage and salary employment risk and return (WSE) portfolio, the WSI portfolio also showed a U-shaped relationship between WSI Growth and WSI Risk, when plotted for all the counties in different timeframes (See Figure A1 in the Appendix).

The wage and salary income risk and return portfolios of 1996–2005, 1996–2006, 1995–2005, 1991–2005, 1991–2001, 1997–2006, 2001–2010, 2000–2009, 1997–2007, 2000–2008, 2002–2007, and 1998–2007 were selected for this analysis. The impact of the WSI risk–return portfolio on the new business survival rate in 2010 was found to be robust across these timeframes in the MSAs. We offer the following speculative scenarios to help understand these results.

A severe macroeconomic event was found while analyzing new business survival in the years preceding 2010, namely, the Great Recession. This recession was a distinctive

event, comparable only to the Great Depression. It was deep, and compared to recent recessions, lasted for a longer period—from December 2007 to June 2009. The severity of this recession can be gauged from the fact that the national unemployment rate rose to almost 10% in late 2009. The average expenditures per household declined from USD 52,203 in 2007 to USD 48,109 in 2010 (The Recession of 2007–2009, Bureau of Labor Statistics, 2012, https://www.bls.gov/spotlight/2012/recession/, accessed on 3 December 2019) [36]. Spending declined in all major categories except healthcare during this period. Labor productivity increased marginally, while output and number of hours worked dropped significantly [36]. The wages and salaries of employees in the private sector grew by only 1.3% in December 2009, compared to an increase of 3.6% in March 2007.

Wage and salary income growth was found to have a positive effect, and is strongly significant in this analysis. This suggests that with increased growth in WSI, the survival of businesses increased. The Great Recession was deep, and lasted for a longer period compared to other recessions in the recent past. New businesses that rewarded existing employees, who stayed with them during this unprecedented event, with small but significant increases in wages and salaries were likely to have encouraged these employees to prolong their stay with them. Sharing the economic rewards with their employees is likely to help them not only survive in challenging times, but also to achieve a quick turnaround.

WSI-Risk was found to have a positive effect, and was significant in new businesses' survival in MSAs during the studied timeframes.

MSAs with a higher percentage of the population residing in rural areas in 2000 had a higher business survival rate in 2010 during the selected timeframes. Rural areas witnessed relatively sharper declines in jobs and prolonged unemployment in the local labor market. More job opportunities and higher wages are key factors in attracting younger workers to cities and urban areas. Older workers are comparatively less mobile and able to switch occupations when faced with an economic crisis, which creates challenges when it comes to making structural changes in the local economy [37,38]. The migration of a semi-skilled and skilled labor force contributed to the bigger pool of potential employees to choose from for the employers in MSAs.

"Median Household Value 2000" was found to be negative and significant during the selected timeframes. The Great Recession originated in the housing sector, and subsequently spread to other sectors of the economy. It is no surprise that the bursting of the housing bubble resulted in a sharp decline in housing values. This decline in housing prices resulted in negative home-equity for many homeowners. The unprecedented decline in personal wealth and the unfavorable shift in the labor market likely encouraged employees to remain in their current employment, which had a positive impact on the survival of business establishments.

Both "Population with BA+, 2000", and "Population with High School degree but No BA+, 2000", were found to have a positive and consistent impact on new business survival in 2010 during the selected timeframes. It is not surprising that MSAs with a higher share of both highly skilled labor force and semi-skilled labor force had higher survival rates. Higher human capital endowment is often associated with higher levels of experience, transferable knowledge, and skills, which helps alleviate the negative impacts of recessions in MSAs [39]. Such employees are highly valued assets, and firms prefer to retain them even when rationing jobs during recessions. Large cities and urban areas have a higher share of labor force with a college education. Ref. [40] shows that places with a higher share of college graduates suffered smaller effects from the crisis.

MSAs with a higher share of skilled labor force attract high-tech jobs. Ref. [41] found that the job-multiplier in commuting zones ranges from 1.7 to 2.9, depending upon the existence of high-tech clusters. This means that for every 100 new jobs created in high-tech sectors, 70 to 190 additional local jobs (including semi-skilled and unskilled) would be created in the regional unit. The survival of new businesses in the high-tech sectors in MSAs saved not only jobs in their units, but also several jobs that they helped create.
