Are Start-Ups the True Job Generators?

I think a lot about jobs. Since I was a kid I've liked to help people find jobs and to talk about what they like to do at work. Maybe that's why I enjoy my own job so much as a journalist, which allows me to learn about new perspectives and different careers from business owners and entrepreneurs.

Lately I've been talking to a lot of start-ups and so found it fascinating that a new study by the Kauffman Foundation reveals that established firms are on a track of losing 1 million jobs annually while in their first year, new firms add an average of 3 million jobs. Of course, let's just hope those new firms stick around.

The study shows that during recessionary years, job creation at startups remains stable, while net job losses at existing firms are highly sensitive to the business cycle.

On average, one-year-old firms together create nearly one million jobs, while 10-year-old firms generate 300,000. I recently interviewed the CEO of Groupon, a 20-month-old global company that is now worth $1.35 billion and employs more than 1,000 people. Yes, I see where this study is coming from.

“These findings imply that America should be thinking differently about the standard employment policy paradigm,” said Robert Litan, vice president of research and policy at Kauffman. “Policymakers tend to focus on changes in the national or state unemployment rate, or on layoffs by existing companies, when, in fact, policy has little effect on net employment growth. Instead, job growth best would be influenced by focusing greater attention on policy that supports startup firms.”

Because startups that develop organically are almost solely the drivers of job growth, job-creation policies aimed at luring larger, established employers will inevitably fail, said study author Tim Kane, a Kauffman senior fellow. Such city and state policies are doomed not only because they are zero-sum, but because they are based in unrealistic employment growth models, he added.