from the Good Ideas File: job creation and young businesses

There’s been some confusion and possibly conflicting information around small business job growth, new business job growth and start-up trends in general in the press lately. That is part of why this new report from the Kaufmann Foundation caught my attention.

While the whote report is worth reading, this chart particularly caught my attention – but apparently not quote for the reasons that the authors expected:

 

chart

from Kauffman Foundation. Click the image for the link.

Take notice of the trend lines here: not only is the amount of job creation higher for the younger firms, but over time, the job creation trend among younger firms is less volatile. When the recession hit, the oldest firms took the biggest drop in job creation.  Overall.  net job creation in firms under 10 years old hardly blipped.

 

We have this standard, frequently unexamined assumption that chasing main line, established businesses for expansion or relocation is the right idea, the right policy, because that’s how you build substantial job growth.  An auxillary is that focusing on young businesses is nice but risky, because young firms have a relatively high death rate.

But this data seems to indicate the opposite — that an economy that relies on young businesses has both higher job growth and more stable job growth than economies that rely on older businesses.  My own guess would be that the higher level of churn — business deaths and business starts — leads to an overall higher level of net job creation, even in the face of some of those businesses not surviving for long.

This should be substantial cause for re-thinking of a lot of our economic development policies, at all levels.  If our stated objective is to increase the number of jobs available, a strategy that focuses on growing new businesses seems to be both the most effective and the most resilient way to do it.

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