Productivity Growth

   Low costs of business entry with relatively few administrative hurdles have also contributed to greater efficiency gains in the United States. A recent study by the World Bank shows that the United States, at 5 days, ranks behind only Canada and Australia in terms of the number of days required to start a business, and has the fourth lowest administrative costs to start a new business. New businesses provide both a ready supply of new ideas and a source of competition that forces larger businesses to innovate. Both of these factors have likely given the United States an edge in taking advantage of new opportunities made possible by IT advances. As with flexible labor markets, the ease of starting a new business helps with the level and the growth rate of productivity. Over long periods of time, starting new businesses keeps the economic environment competitive, which spurs innovation and helps push inefficient firms out of the market place.