Report: Startups Help Sustain Long-Term Job Growth

An analysis of U.S. Census Bureau business data by the Ewing Marion Kauffman Foundation indicates that the numbers of jobs created by startup companies in the U.S. since 1977 have stayed fairly stable, even while most of the startup companies themselves have disappeared.

The report — After Inception: How Enduring is Job Creation by Startups? — shows that many new firms fail, taking away the jobs that they created. But at the same time, many other startup companies thrive and create jobs, which partially balances out the jobs lost by closing and shrinking firms.

The data analyzed in the report indicate that only about one in five companies remain in business 25 years after they begin. When firms close, their payrolls disappear, but the overall employment numbers among the cohort of companies that began within the same five-year period appear to hold steady at around 68 percent of their initial levels. The report authors attribute this leveling-out process to surviving firms that continue to grow and add jobs. Thus while the number of companies may decline, job growth in the surviving companies picks up some of the slack.

The study also analyzed business-creation and employment during recessions, and found a more complex picture. Companies starting up during recession periods hired fewer employees at first than those firms that started up during expansion years, but generally increased their hiring after recessionary periods to catch up to companies starting during expansions. However, companies starting up during extended recessions — those lasting three years or more — created about 10 percent fewer jobs than companies whose first five years avoided recessions altogether.

The study analyzed data from the Business Dynamics Statistics dataset compiled by the U.S. Census Bureau, which tracks the annual number of new businesses (startups and new locations) from 1977 to 2005.