Small Business Trends

Guess Who’s Creating the Most U.S. Jobs. It’s Likely Not Who You Think.

Economic Trends, ResearchNovember 16, 2009By Rieva Lesonsky

The recession may be “over,” but the latest employment stats from the Department of Labor are far from encouraging. As America seeks to create new jobs, where should the focus of government assistance be? While most of the attention has focused on bigger firms, a new study from the Ewing Marion Kauffman Foundation suggests this is misplaced.

Younger companies not only create more net new jobs than their more established counterparts, they also create a higher average number of jobs per firm, according to Where Will the Jobs Come From? Based on an analysis of U.S. Census Bureau data, the study showed that companies less than 5 years old created nearly two-thirds of net new jobs in 2007.

“Within this group of companies, moreover, there is a substantial set of rapidly growing businesses that account for a disproportionate share of net job creation,” said Dane Stangler, senior analyst at the Kauffman Foundation and co-author of the study.

Most studies of job creation focus on company size rather than age. Where Will the Jobs Come From? was based on new data, a Special Tabulation conducted by the Census Bureau at the request of the Kauffman Foundation, calculated from the 2009 Business Dynamics Statistics (BDS). The BDS includes measures of business startups, establishment openings and closings, and establishment expansions and contractions in both the number of establishments and the number of jobs.

“This study sends an important message to policymakers,” said Robert Litan, vice president of Research and Policy at the Kauffman Foundation and one of the study’s authors. “Sometimes a single barrier, such as limited access to credit for business growth, can mean the difference between survival and failure. We must create an environment that aids firm formation and growth if we are going to turn employment around.”

Litan and Stangler think President Obama’s recent announcement of larger SBA loan guarantees and lower-cost credit for community banks is a good first step, but they also suggest more drastic moves such as a payroll tax holiday for new and young businesses.

“Job creation is the number one issue facing families and policymakers during this economic recession, and this study shows that new businesses and entrepreneurs are the key factor in adding new jobs,” said Carl Schramm, president and CEO of the Kauffman Foundation. “If the U.S. economy is going to have a sustained recovery, it will be up to entrepreneurs to lead the way.”

While this may be surprising to some, I’ve instinctively known this for years. Startup businesses need more support. Here’s hoping the new numbers help convince business marketers and the policymakers in Washington.
Read the full report.

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About the Author: Rieva Lesonsky is CEO of GrowBiz Media, a content and consulting company that helps entrepreneurs start and grow their businesses. A nationally known speaker and authority on entrepreneurship, Rieva has been covering America ’s entrepreneurs for nearly 30 years. Follow her on Twitter @Rieva and visit SmallBizDaily to read more of her insights on small business.

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141 Responses to “Guess Who’s Creating the Most U.S. Jobs. It’s Likely Not Who You Think.”

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  1. Robert Brady says:
    November 16, 2009 at 2:11 pm

    This data doesn’t surprise me at all and I’m even less surprised that big companies get most of the government assistance (since they spend all that money on lobbying). While these reports help and some action is being taken to get help to smaller companies, I would recommend that these newer companies not hold their breath waiting for government help.

  2. Keith DeLong says:
    November 16, 2009 at 8:03 pm

    I’m not surprised at all. While our time clock software company has been around longer than 5 years, we’re still a ‘very small business’ by government standards. Being small and lean has allowed us to react very quickly to changing economic conditions. As a result we’ve continued to grow and hire during this recession. While there are exceptions in certain sectors (like housing), I’ve seen the same principle hold true in most small businesses owned by my entrepreneurial peers.

  3. Celso says:
    November 16, 2009 at 8:14 pm

    Small businesses and entrepreneurs have always been neglected by the government in my opinion. We certainly contribute by generating a significant amount of new jobs, and we often innovate old business practices in order to deal with difficult situations as the one we are facing these days. Yet every time the government comes up with a plan to help the economy, we are rarely included in the deal. It’s always been this way and I doubt that things will be any different this time around.

  4. Galia Kouzmanova says:
    November 16, 2009 at 11:30 pm

    It is not surprising! There should be government funding support for the business advisors providing startup mentorship and launching services. First-time small business owners need various management consulting help.

  5. Curt says:
    November 17, 2009 at 9:19 am

    It’s going to be very difficult as Obama’s aggenda is fighting against capital formation, the foundation of small business and continues to destroy jobs.

    The truth is that congress and Obama are holding back the free market from creating jobs.

  6. Pro2ProNetwork says:
    November 17, 2009 at 10:21 am

    This article was really interesting and somewhat surprising to me that start up businesses are generating the most jobs. On one hand, they do need more support for expanding, but at the same time most people generally apply for the well known bigger companies. Great advice for those who are searching the job market.

  7. K James says:
    November 18, 2009 at 5:54 am

    In 2002, there were approximately 23 million small businesses in the United States according to the US SBA (Small Business Administration).

  8. Terry Neese says:
    November 23, 2009 at 12:09 pm

    All small businesses, regardless of age, need to be supported. They are what drive the economy. Stifling their means to get capital will only hinder their formation and growth. Failure to allow small businesses to grow, will not only hurt those businesses, but the economy as a whole.

    We are working hard at the NCPA on free market solutions for Americans http://www.ncpa.org



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