Small Businesses Startups and Job Growth

The Kauffman Foundation has done extensive research on job creation. Kauffman Senior Fellow Tim Kane analyzed a new data set from the U.S. government, called Business Dynamics Statistics, which provides details about the age and employment of businesses started in the U.S. since 1977. What this showed was that startups aren't just an important contributor to job growth: they're the only thing. Without startups, there would be no net job growth in the U.S. economy. From 1977 to 2005, existing companies were net job destroyers, losing 1 million net jobs per year. In contrast, new businesses in their first year added an average of 3 million jobs annually.

When analyzed by company age, the data are even more startling. Gross job creation at startups averaged more than 3 million jobs per year during 1992-2005, four times as high as any other yearly age group. Existing firms in all year groups have gross job losses that are larger than gross job gains.

Half of the startups go out of business within five years; but overall they are still the ones that lead the charge in employment creation. Kauffman Foundation analyzed the average employment of all firms as they age from year zero (birth) to year five. When a given cohort of startups reaches age five, its employment level is 80 percent of what it was when it began. In 2000, for example, startups created 3,099,639 jobs. By 2005, the surviving firms had a total employment of 2,412,410, or about 78 percent of the number of jobs that existed when these firms were born.

Source: The last chapter in John Mauldin’s 2011 book Endgame: The End of the Debt Supercycle and How It Changes Everything.

Startups are fragile. It’s hard enough getting and retaining customers and trying to be better than your competitors. Then I read that start-ups are prime targets for cyberattacks. Geez.  And when gov’ts over-regulate and over-tax the start-ups it doesn’t make running a business any easier. More obstacles to overcome.  Then when they grow, the gov’t punishes them unless they do business with the gov’t—ie crony capitalism.