Yesterday we highlighted a recent report from the Kauffman Foundation that showed a sharp increase in the growth of entrepreneurship during the recession.  We were reluctant to buy into the Kauffman headline: "Despite Recession, U.S. Entrepreneurial Activity Rises in 2009 to Highest Rate in 14 Years," as it seemed that one could just as easily say that the growth in entrepreneurship was "because of" as opposed to "despite" the recession.  But we didn't look closely enough to have confidence in that point. Scott Shane did look more closely, and he cautions us not to view the trend as a positive one:

As the Kauffman Index shows, during the recession, the number of people who moved into self-employment increased. But as the BLS shows, the number of people who are self-employed in at any point in time has declined. For both these numbers to be correct – and I have no reason to doubt the accuracy of either one – a lot of people must have given up on self-employment in 2009.

According to the Kauffman Index, an estimated 6.7 million Americans went from not being self-employed to being self-employed last year. Given the 224,000 person drop in the number of self-employed people reported by the BLS, 6.9 million people must have quit working for themselves in 2009.

Do these numbers mean that “last year … a fabulous one for entrepreneurs” as Reich wrote in the New York Times? Are the results of the Kauffman Index really “good news for the year 2009” as Kirsten Moore wrote in Newgeography?

I don’t think so. If we accept the Kauffman Foundation’s argument that the self-employed are entrepreneurs, then the CPS data show an entrepreneurial sector that has been damaged by the recession. The statistics indicate that the self-employment failure rate has become so large that the number of people working for themselves has dropped, despite a sizeable increase in the number of people becoming self-employed.

Read Shane's post at Small Business Trends, here.