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Safely Steer Technological Advance

Technology Startups

A recent study by the Kauffman Foundation, shows net job growth occurs in the U.S. economy only through startup firms. The study bases its findings on the Business Dynamics Statistics, a U.S. government data set compiled by the U.S. Census Bureau.

The BDS series tracks the annual number of new businesses (startups and new locations), and defines startups as firms younger than one year old. The study reveals that, on average, existing firms are net job destroyers, losing 1 million jobs net combined per year.

By contrast, in their first year, new firms add an average of 3 million jobs. Further, the study shows, job growth patterns at both startups and existing firms are pro-cyclical, although existing firms have much more cyclical variance.

Most notably, during recessionary years, job creation at startups remains stable, while net job losses at existing firms are highly sensitive to the business cycle.

“Because startups that develop organically are almost solely the drivers of job growth, job-creation policies aimed at luring larger, established employers will inevitably fail”, says the study’s author, Tim Kane, Kauffman Foundation senior fellow in Research and Policy.

Such city and state policies are doomed not only because they are zero-sum, but because they are based in unrealistic employment growth models.

And it’s not just net job creation that startups dominate. While older firms lose more jobs than they create, those gross flows decline as firms age.

On average, one-year-old firms create nearly 1,000,000 jobs, while ten-year-old firms generate 300,000. The notion that firms bulk up as they age is, in the aggregate, not supported by data.

A Flexible and Open Framework is Required

The multi-layered and rigid structures in use today have proven themselves incapable of dealing effectively with the changes we are experiencing.

Small businesses are failing at a higher rate than at any time in history. The state of entrepreneurship in the United States is, sadly, weaker than ever. There are fewer new firms being formed today than four years ago when the recession is said to have ended.

As the Bureau of Labor Statistics (BLS) described in their quarterly entrepreneurship figures, “New establishments are not being formed at the same levels seen before the economic downturn began, and the number is much lower than it was during the 2001 recession.”

Adaptive Livelihoods Empower Social Advance