Young Companies are the Engine of Job Creation

I came across a fascinating report on Twitter recently. A new research report from the Kauffman Foundation challenges some of the widely held assumptions about where job growth will come from in a cautiously growing economy.  Since small businesses account for about half of the labor force many believe that they will be the key drivers of job growth, but this report shows that the size of the business has little correlation to its ability to generate jobs… it is all about the age.

Did you know that since 1980, nearly all net job creation creation in the US has occurred in firms less than five years old?  In that time, without startups net job creation would be negative in only a handful of years.  Of the 12 million jobs created in 2007, young firms were responsible for 8 million of them.  New companies are the primary driver of jobs in the US.  Here are some quotes on this from the report:

What is more interesting about the sectoral breakdown is what it reveals about the dynamic between firm size and age. In particular, there is very little relationship between the amount of small firm employment in a sector and its job growth.

By contrast, there is an incredibly tight relationship between any particular sector’s job growth and the performance of young firms within that sector.

The bottom line: young companies are the engines of job creation.

Startups are risky and only half of them make it to age five, but those that do make it generate a considerable amount of new jobs relative to older age companies. In addition, as new companies mature they are succeeded over the next several years by an new pool of firms. It is a simple concept, success breeds success.  The net effect of this cycle of churn and innovation generates adds about 2 millions jobs a year to our economy.

For more on this analysis, you can download the full report here.

Young and emerging companies are a unique strength of JCSI. To win the battle for market share, young companies must win the battle for talent. JCSI provides these companies with the sophisticated candidate research, communications and measurement tools they need to compete with larger and more established competitors in their space.