Friday, November 6, 2009

New businesses are the job creators

Excerpts from: New Business, Not Small Business, Is What Creates Jobs Nearly all net job creation since 1980 occurred in firms less than five years old, by CARL SCHRAMM, ROBERT LITAN AND DANE STRANGLER

While a slight improvement over last month's numbers, today's employment update from the Bureau of Labor Statistics presents a dismal picture for American workers. As policy makers

search for the best remedies to strengthen our economic performance, they can't afford to overlook new firms and young firms.

Unfortunately, in troubled economic times the language of recovery is too often tilted toward large, established companies or to "small businesses," a broad term that traditionally applies to businesses with fewer than 500 employees. The conventional wisdom is that such businesses account for half of the labor force and are therefore the engine of future job creation.

That's not quite the case. The more precise factor is not the size of businesses, but rather their age. According to the Census Bureau, nearly all net job creation in the U.S. since 1980 occurred in firms less than five years old. A Kauffman Foundation report released yesterday shows that as recently as 2007, two-thirds of the jobs created were in such firms. Put more starkly, without new businesses, job creation in the American economy would have been negative for many years.


  1. These statistics seem misguided. Two thirds of jobs are created within first five years of a new business. However 80 precent of these new businesses fail within their first five years. With a job retention rate of 0.133 precent, I think it only fair to reveal the bigger picture.

  2. Retention rate of 13.3%. (Nevertheless incredibly low)