Startups Are Everything

My new study just released from the Kauffman Foundation, The Importance of Startups in Job Creation and Job Destruction, is available now. It's short and sweet (7 pages of text), with about as simple a talking point as can be: "New firms add an average of 3 million net jobs in their first year, while older companies combined lose 1 million net jobs annually."  The surprise for me, and I expect most economists/data geeks, is that aggregate gross job creation and destruction curves along the firm age axis are convex, not concave.

I don't have the individual charts in GIF format, but here's a raw one from my spreadsheet. Notice how gross job creation at startups dwarfs gross flows at other firms. For example, startups create 10x more jobs than 10-year old firms, gross, and infinitely more net.  How many economists even guess this is how the U.S. economy works?  I didn't until I saw the data.

 

  

Comments

[Steve]

This is really interesting. What, if anything, does this mean for the role of high growth companies (gazelles) in job creation? They have traditionally been credited with creating the majority of net new job.

[Milton Recht]

I am curious how the database deals with older company spinoffs, sales of divisions, product lines, etc.

If a spinoff, etc., is counted as job destruction by an older company and job creation by a newly established buyer, then the data is unfairly biased against older firms and unfairly biased in favor of younger firms.

Often in these situations, there is no job loss or gain to the economy, and the same employees that worked at the older company continue to work at their new employer/buyer, younger company.

[Milton Recht]

I am curious how the database deals with older company spinoffs, sales of divisions, product lines, etc.

If a spinoff, etc., is counted as job destruction by an older company and job creation by a newly established buyer, then the data is unfairly biased against older firms and unfairly biased in favor of younger firms.

Often in these situations, there is no job loss or gain to the economy, and the same employees that worked at the older company continue to work at their new employer/buyer, younger company.

[Michael F. Martin]

Very useful report on the numbers, but it's disappointing that anybody finds the question of where jobs are created controversial.

The more difficult questions were raised by Andy Grove on July 1. It would be interesting to here a response from folks at Growthology.

http://www.bloomberg.com/news/2010-07-01/how-to-make-an-american-job-before-it-s-too-late-andy-grove.html

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