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Study: Start-Ups Hiring and Keeping Fewer Workers

Interview Hands (bpsusf/Flickr)A new study by the Ewing Marion Kauffman Foundation indicates recent start-up businesses — like those formed by scientists to commercialize their research findings — are not generating the numbers of jobs created by earlier start-up businesses. The foundation says the trend of less hiring by start-ups pre-dates the 2007-2009 recession.

The Kauffman findings show that in recent years, new businesses continued to generate the bulk of the economy’s net job gains, but have been starting up with fewer workers than historic norms and are also adding fewer workers as they grow.  Robert Litan, Kauffman Foundation vice president and co-author of the study says, “We won’t fix our core unemployment problem in the United States until young businesses get back on track.”

Kauffman drew the data for the study from the U.S. Census Bureau, part of Department of Commerce, and the Bureau of Labor Statistics (BLS), in the Department of Labor. The Census data show that the number of new employer businesses — those that hire new workers — has fallen 27 percent since 2006. The BLS surveys of business establishments show that in the 1990s new establishments opened their doors with about 7.5 jobs on average, compared to about 5 (4.9) jobs today.

Data for small company formation during this time may suggest that entrepreneurs are creating more start-ups, but many of those start-ups are self-employed owners, who have few immediate plans (if any) to hire additional staff. Historically, new firms in the U.S. generated about 3 million new jobs every year, but recent start-ups appear to have performed much worse, creating only 2.3 million jobs in 2009.

As a group, recent new businesses have been adding jobs at a slower pace than their earlier counterparts, even when the companies do well and grow. That growth, however, has not made up for the smaller size of the new companies when they started.

Read more: New U.S. Start Ups Rise in 2010: That’s the Good News

Photo: bpsusf/Flickr

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