Startups: Job Creation Engines (Are You Listening Obama?)

Posted by: Spencer Ante on November 16, 2009

In this week’s issue of BusinessWeek, we published the inaugural list of “The World’s Most Intriguing New Companies.” I am thrilled that we launched the package right as Global Entrepreneurship Week kicks off, taking place Nov. 16-22, in 85 nations.

In my lead story for the package, “Fertile Ground for Startups,” I made two big points:
1. Startups are playing an increasingly important role in American business
2. Startups may play a central role in any recovery.

There was one startling new study, based on 2007 Census data, I was unable to work into the story that I want to highlight now, which provides some empirical evidence supporting the second point.

According to a new study by the Ewing Marion Kauffman Foundation, which was co-written by the respected economist Robert Litan, companies less than five years old generated nearly two-third of the net new jobs created in the U.S. in 2007. Without these startups, “net job creation for the American economy would be negative in all but a handful of years.”

The upshot: It is clear more than ever that new companies and the entrepreneurs that lead them are the engines of job creation and economic recovery.

It is well known within economic circles that new companies produce the majority of new jobs in the U.S. economy. What this reports reveals for the first time is extent of that trend, and the fact that startups play a particularly important role in growing jobs out of a recession. New companies have produced all of the net new jobs in the U.S. from 2001-2007, and also from 1980-1983, the last big American downturn, according to the study.

This has huge implications for the Obama Administration as it tries to get the economy growing again. It also suggests a shift in focus and policy. Instead of focusing on saving large and dying industries (i.e. automakers and banks), the Obama Admin. should “begin paying more attention to removing roadblocks to entrepreneurs who will lead us out our current (well-founded) pessimism about jobs and sustain economic expansion over the long run,” wrote the authors of the report.

One idea the authors float: granting a payroll tax holiday for new companies. This is a great and timely idea, especially since the expected health care reform law is supposed to increase the cost of doing business for new companies. Such a targeted tax cut could help offset the pain of health care reform and give new employers more of a reason to ramp up hiring.

This isn’t to discount the role that big companies play in job creation. Large companies with 10,000 or more employees account for more than 10% of net job creation. But even then the authors note that those new net jobs may stem from the process of big companies acquiring young ones. “One of the only ways for big companies to add net jobs is to acquire younger companies that are not only generating jobs, but also are responsible for a good number of innovations that will keep the bigger company’s revenue from diminishing,” write the authors.

- Spencer Ante also publishes the Creative Capital blog. Click here to read more.

Where Will the Jobs Come From? Startups!

Reader Comments

DanTe

November 17, 2009 1:09 AM

Here's the standard dumbacrat line: Startups are nice. But people come first. Startups must pay for all the medical expenses. Startups must make sure that they pay a reasonable amount of salaries to their partners so that it may be taxed appropriately. Startups must make sure that the capital they're getting are fully taxed for capital gains + medicaid + social security. Startups must make sure that they pay all the fees that's been put into place to help fund the deficit - i.e. health administration fees, 401k admin fees, and related SEC fees. And make sure Startups pay their fair share of corporate taxes at 52%, none of that 28% everyone else pays. Don't forget, Startups are no good if people can't unionize by open votes where employees can be known and intimidated to vote for unions. And Startups must pay union fees. Yes, Startups are good. Just tax it and fee it to death. It'll be better still. Nothing votes for dumbacrats than out-of-work libtards.

Richard D. Smith

November 20, 2009 5:08 PM

If you haven't already seen it, suggest you view the recent SMITH-TRG, U.S. Jobs Creation Plan presentation. To view go to http://www.smith-trg.com/createjobs.html

Your thoughts...

Richard D. Smith

November 20, 2009 5:08 PM

If you haven't already seen it, suggest you view the recent SMITH-TRG, U.S. Jobs Creation Plan presentation. To view go to http://www.smith-trg.com/createjobs.html

Your thoughts...

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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