Starting Smaller, Staying Smaller

Hat tip to Tyler Cowen for pointing out this study from the Kauffman Foundation of business creation and job creation. While finding that while new firms continue to be generate the bulk of new jobs gained:

historically, new firms in the United States have generated about 3 million new jobs every year, but that recent cohorts have performed much worse, creating only 2.3 million jobs in 2009. At the level of individual businesses, one data series (BLS establishment data) showed that in the 1990s new establishments opened their doors with about 7.5 jobs on average, compared to 4.9 jobs today.

You can click on the graphic above for a larger version.

I believe that the reasons for this are the present economic downturn, demographic, attitudinal, and structural and will be very hard to reverse.

However, I also think that this study has some shortcomings. I find the reliance on averages troubling. A lot of the sharp decline the study reports since the 1990s are a direct consequence of the present downturn. There actually is no decline in business creation in the Aughts if you stop through 2007.

But to some degree they’re understating the problem. When viewed as business and job creation per 100,000 population there has been a marked decline over the last 30 years and the last two decades reflect a situation of steady firm creation and slowing job creation, punctuated by a flurry of activity during the recent dot-com and housing bubbles.

Despite the successes of companies like Microsoft, Google, and Oracle most software startups are small and stay small. Their life cycle is very different from that of even small manufacturing firms not only in employment but in capital expenditures (that’s one of the reasons so many are formed). Software startups won’t save us.

1 comment… add one
  • john personna Link

    As I mentioned someplace(?), I’d like to see US small-business creation on the same chart as global small-business creation. IMO, it is not unrelated to the number of small shops in China now tying Parachute Adams for American fishermen.

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