Kauffman Foundation publishes a new study showing that start-ups and young companies are the primary drivers of job creation in the U.S. economy. We've known for years that small businesses generated most of the net new jobs in our economy over the past 30 years - this study adds a couple of things to the discussion. It adds the dimension of firm age - showing that young firms (not just small firms) disproportionally are the generators of jobs. And it brings the discussion up to date and into the current recessionary economy.
From the Kauffman press release...
The distinction of firm age, not necessarily size, as the driver of job creation has many implications, particularly for policymakers who are focusing on small business as the answer to a dire employment situation. This report shows that most net job creation is generated by firms that are one to five years old. These firms create more net new jobs than their older counterparts, as well as a higher average number of jobs per firm. In some cases, these young firms grow into large companies employing thousands of people. Importantly, these companies could still fail at some point or be acquired by older and larger companies; or they could stop growing and remain the same size indefinitely. Some of these firms, meanwhile, continue to generate positive rates of net job creation at older ages.
They also point to the reality of constant job (and company) churn...
Net job growth is marked by churn, the process by which jobs are created and destroyed by shifts in the economy. Each year new companies emerge to create lots of jobs and are succeeded in subsequent years by a new pool of firms. The net effect of this is to consistently add two million new jobs to the economy each year.
Churn means we have to keep starting new companies every year. Any public policy decisions that suppress the rate of new company formation inevitably reduce potential for new job growth.
Some study questions for the reader - what public policy decisions would result in higher rates of company formation and job growth? Higher taxes in the new new government takeover of the healthcare industry or from carbon taxes in the climate bill or cuts in capital gains rates, marginal income tax rates, and corporate tax rates? Economic policies favoring or protecting large incumbent firms (say, for example, General Motors, Chrysler, big banks, and other firms that the government now owns a piece of) vs. economic policies favoring entrepreneurs and young companies?