Slide in New Establishment Job Creation

Job creation in new establishments ain’t what it used to be.

Last year, the number of jobs in establishments less than one year old was only 60 percent of its 1994 level, according to Bureau of Labor Statistics (BLS) data. That translates to approximately 1.7 million fewer people working in new businesses in 2010 than did so back in the mid-1990s. Given the increase in the population since 1994, that’s quite a shift away from employment in new entities.

The decline in employment in new establishments isn’t just another problem generated by the Great Recession. While the worst recession since the Great Depression accelerated the decline in employment in these businesses, the fall in new establishment employment started well before the downturn began. As the figure below shows, employment in new establishments has been on a continuous decline since 1999, after rising 14 percent between 1994 and 1999.

The BLS will soon tell us if the downward trend reversed itself in 2011. While it’s possible, my money’s on a continued decline, albeit at a slower rate than in recent years.

Source: Created from data from the Bureau of Labor Statistics

Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

2 Reactions
  1. Do you think that the increasing use of technology is causing this trend? Or is it more the fact that manufacturing-type jobs are moving to areas with cheaper labor forces?

  2. We been looking at this issue and see 3 main drivers:

    1. automation.

    2. partnering and outsourcing instead of doing things in-house.

    3. the growing use of contingent workers (freelancers, temps, contractors) instead of employees.

    We’ve been focusing this research on tech startups and these firms consistently use all three methods to minimize their use of full time employees.

    I agree with Scott that the downward trend will continue.