Young Firms Create Two-Thirds of New Jobs

(p. A25) While a slight improvement over last month’s numbers, today’s employment update from the Bureau of Labor Statistics presents a dismal picture for American workers. As policy makers search for the best remedies to strengthen our economic performance, they can’t afford to overlook new firms and young firms.

Unfortunately, in troubled economic times the language of recovery is too often tilted toward large, established companies or to “small businesses,” a broad term that traditionally applies to businesses with fewer than 500 employees. The conventional wisdom is that such businesses account for half of the labor force and are therefore the engine of future job creation.
That’s not quite the case. The more precise factor is not the size of businesses, but rather their age. According to the Census Bureau, nearly all net job creation in the U.S. since 1980 occurred in firms less than five years old. A Kauffman Foundation report released yesterday shows that as recently as 2007, two-thirds of the jobs created were in such firms. Put more starkly, without new businesses, job creation in the American economy would have been negative for many years.
. . .
Entrepreneurs have a proven track record of job creation, especially in the early years of their firms. Eliminating or lowering the economic and regulatory hurdles that stand in the way of their success will pave the way for sustained expansion after the government’s current stimulus measures come to their inevitable end.

For the full commentary, see:
CARL SCHRAMM, ROBERT LITAN AND DANE STANGLER. “New Business, Not Small Business, Is What Creates Jobs; Nearly all net job creation since 1980 occurred in firms less than five years old.” The Wall Street Journal (Fri., NOVEMBER 6, 2009): A25.
(Note: ellipsis added.)

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