About the Kauffman Index of Entrepreneurial Activity

The Kauffman Index measures the monthly rate of business creation at the individual owner level, reporting the percent of non-business owning adults who start businesses with more than fifteen hours worked per week. The matched basic monthly files from the Current Population Survey (CPS) provide a uniquely large, nationally representative panel dataset for measuring this entrepreneurial activity. The total sample size for the period from 1996 to 2006 for the adult population is over eight million. Detailed demographic information available in the CPS and large sample sizes also allow for estimates of separate indices by gender, race, education, age, and immigrant status. Indices for all states and for the largest MSAs are also calculated.

The underlying datasets that are used in this analysis are the basic monthly files to the Current Population Survey (CPS). These surveys, conducted each month by the U.S. Bureau of the Census and the Bureau of Labor Statistics, are representative of the entire U.S. population and contain observations for more than 130,000 people each month. By linking the CPS files over time, longitudinal data are created, allowing for the examination of business creations. Combining the 2006 monthly data creates a 2006 dataset with a sample size of roughly 600,000 adults. The dataset built for the analysis of the eleven-year period between 1996 and 2006 has a sample size of more than 8 million adults.

CPS are interviewed each month over a four-month period. Eight months later they are re-interviewed in each month of a second four-month period. Thus, individuals who are interviewed in January, February, March, and April of one year are interviewed again in January, February, March, and April of the following year. The rotation pattern of the CPS makes it possible to match information on individuals monthly, and, therefore, to create monthly panel data for 75 percent of all respondents in the CPS. To match these data, the household and individual identifiers provided by the CPS are used. False matches are removed by comparing race, sex, and age codes from the two months. After all non-unique matches are removed, the underlying CPS data are checked extensively for coding errors and other problems.

Monthly match rates are generally between 94 and 96 percent (see Fairlie 2005), and the primary reason for non-matching is household moves. A somewhat non-random sample (mainly geographic movers) will, therefore, be lost due to the matching routine. Moves do not appear to create a serious problem for month-to-month matches, however, because the observable characteristics of the original sample and the matched sample are very similar see Fairlie 2005).

Additional details on the methodology behind the Kauffman Index are available in the appendix to Kauffman Index of Entrepreneurial Activity, 1996-2006.