Has the Swedish Business Sector Become More Entrepreneurial than the U.S. Business Sector?

Recent studies document a 30-year decline in various measures of entrepreneurship in the U.S. Using detailed Swedish employer-employee data over the period from 1990 to 2013, we find young firms to be more prominent in the Swedish business sector than in the U.S. business sector. Young Swedish firms, aged five years or less, account for more than half of all firms during this period. We also observe an increase in Swedish entrepreneurial activity for start-ups. However, since the mid-2000s, job destruction rates for young firms have been increasing, which implies a declining employment share for younger firms. Moreover, most of the job creation by young firms occurs in the expanding service sector. We discuss different explanations for why Sweden appears not to have the same strong decline in entrepreneurial activity as the U.S. has had during the last two decades. We argue that one important explanation is the economic reforms that were implemented in Sweden in the 1990s that mitigated several hurdles to entrepreneurship.