Study: Business Churning Beneficial

New research finds economic gains whenever new businesses replace older ones.

By Laura Palotie | 
 

While the current business climate has more owners worried about staying afloat, new research finds economic benefits when new businesses replace older ones.

According to the Kauffman Foundation, so-called business churning tends to boost productivity and create more new jobs. If a new company survives beyond five years, these gains increase even further, the Kansas City, Mo.-based entrepreneurship advocacy group reported.

Researchers found that more than one-third of new jobs are created by new businesses, though job losses also tend to be higher when younger businesses fail.

"The reallocation of jobs, workers and capital to their best use is a major force behind productivity gains over time, and these gains are the main source of improved living standards," Robert Litan, vice president of Research & Policy of the Kauffman Foundation, said in a statement.

Steven J. Davis, co-author of the report, added that turmoil within the U.S economy appears to be one of its greatest strengths.

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