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Business Start-Ups Creating Jobs

Anthony Randazzo
September 2, 2010, 8:35am

A recent report from Tim Kane, a senior fellow at the Kauffman foundation points to business start-ups, which need a confident capital market to really thrive, as the sole source of job creation in this economy. Vivek Wadhwa breaks it down:

Kauffman Senior Fellow Tim Kane analyzed a new data set from the U.S. government, called Business Dynamics Statistics, which provides details about the age and employment of businesses started in the U.S. since 1977.  What this showed was that startups aren’t just an important contributor to job growth: they’re the only thing. Without startups, there would be no net job growth in the U.S. economy. From 1977 to 2005, existing companies were net job destroyers, losing 1 million net jobs per year. In contrast, new businesses in their first year added an average of 3 million jobs annually. [...]

Half of the startups go out of business within five years; but overall they are still the ones that lead the charge in employment creation. Kauffman Foundation analyzed the average employment of all firms as they age from year zero (birth) to year five. When a given cohort of startups reaches age five, its employment level is 80 percent of what it was when it began. In 2000, for example, startups created 3,099,639 jobs. By 2005, the surviving firms had a total employment of 2,412,410, or about 78 percent of the number of jobs that existed when these firms were born.

This should raise some questions about the validity of stimulus job "creation" numbers.

Read Kane's full report here.


Anthony Randazzo is Director of Economic Research


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