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Study: Start-ups Smaller, Creating Fewer Jobs

Kauffman Foundation analysis shows even successful small businesses aren't adding jobs at the rates they did in previous decades.

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New businesses are starting smaller, surviving less often, and creating fewer jobs even when they thrive, according to new research.

The Ewing Marion Kauffman Foundation’s analysis of Labor Department and U.S. Census data shows that even before the recession, new businesses stopped creating jobs at the rates they did in the previous decade—a long-term trend researchers call a slow jobs "leak."

Kauffman's analysis of Labor Department and U.S. Census data shows that starting in the middle of last decade new businesses stopped creating jobs at the rates they did in previous decades. In the 1980s new businesses created 3.5 percent of all U.S. jobs and the number of total U.S. jobs grew by 2 percent, says the study, titled "Starting Smaller, Staying Smaller: America’s Slow Leak in Job Creation." But in the 2000s, new businesses created only 2.6 percent of all U.S. jobs and the number of total U.S. jobs grew by only .9 percent. And the new firms started in 2009 are on course to contribute one million fewer jobs in the next decade than historical averages would suggest.

"While the recession certainly deepened the jobs deficit, the U.S. economy stopped producing enough new jobs well before the downturn," said Robert Litan, Kauffman's vice president of research and policy and the study's co-author. "Historically, start-ups are the key to long-term employment growth, and they have been hiring fewer people for the last several years. We won't fix our core unemployment problem in the United States until young businesses get back on track."

The study also found that as a group, new businesses in recent years have been adding jobs at a slower pace than start-ups in previous decades, even when they’re thriving. The jobs they add don’t make up for the lower numbers of jobs they started with.

"Cohorts of businesses rarely add jobs in the aggregate as they age,” said study co-author E.J. Reedy. "A cohort's initial level of employment is likely the maximum number of jobs it will provide over its lifetime. Thus, falling contributions of jobs at new businesses will be felt in the U.S. economy for years."

IMAGE: iStock
Last updated: Jul 25, 2011

Inc. contributing editor COURTNEY RUBIN was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.




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