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.