What’s the best way to create new jobs? Based on a recent study from the Ewing Marion Kauffman Foundation, it’s by stimulating more startup businesses.
The study, High-Growth Firms and the Future of the American Economy, found that in any given year, the top-performing 1 percent of companies account for some 40 percent of jobs. Within that category, fast-growing “gazelle” companies (3 to 5 years old) make up less than 1 percent of all businesses, yet account for approximately 10 percent of net new jobs in any given year. The “average” company in the top 1 percent generates an astounding 88 net new jobs annually, compared to the two to three net new jobs generated by the average firm in the economy as a whole.
The study, authored by Dane Stangler, senior analyst with the Kauffman Foundation, is the third in the Kauffman Foundation Research Series on Firm Formation and Economic Growth. It used a special tabulation performed by the Census Bureau using the Business Dynamics Statistics (BDS) database.
“Because fast-growing young firms account for a disproportionate share of net job creation, policymakers who are worriedly poring over unemployment projections might instead seek to foster the creation of more high-growth firms,” said Robert E. Litan, vice president of Research and Policy at the Kauffman Foundation.
The report made three recommendations to create new jobs:
- Create more companies, because based on simple math, this will mean more high-growth companies and hence more job growth.
- Remove barriers, including difficulty accessing financing, excessive regulation and excessive taxation – that keep existing companies from becoming high-growth companies
- Focus on universities and immigrants, which have the potential to produce high-growth firms. To attract immigrants who plan to start businesses, the report recommends starting a new visa program or expanding the existing EB-5 visa program for immigrant investors. To assist universities, the report recommends encouraging innovation by removing barriers to commercialization of university research.