Young Businesses, Not Small Businesses, Create Jobs
Politicians, listen up: Young businesses--not small businesses--are most responsible for creating jobs in this country.
According to Jason Faberman, a senior economist at the Federal Reserve Bank of Chicago, young, innovative startups are the real drivers of job growth in the U.S., not the mom-and-pop shops often cited by elected officials.
"It's the new guys, not necessarily the small guys, that generate growth," Faberman said Monday at the National Association for Business Economics policy conference in Arlington, Va., The Wall Street Journal reports. "The focus for policymakers shouldn't be on small business job growth, but on new business formation."
The Journal reports that companies that employ 19 workers or fewer, which account for nearly 90 percent of all U.S. businesses, create jobs at almost twice the rate of larger companies. Faberman found that the strongest growth among these small companies came from those that were less than four years old.
Faberman said that the majority of small businesses are "mom-and-pop" companies such as medical practices and construction firms, which do not add a significant number of jobs to the economy. But young, innovative startups, which represent one-sixth of U.S. small businesses, are developing new products and aggressively creating new jobs, he said.
So how can the U.S. help support this key element of the economy's health? Faberman said that policies focused on new business creation and open credit to entrepreneurs are the answer. Such policies will be more effective than ones that favor existing mom-and-pop shops over larger firms, he said.