New Firms Starting Smaller, Growing Slower

Posted by: Mark Marich on July 11, 2011 Source: Policy Dialogue on Entrepreneurship

Companies established in 2009 could employ one million fewer people than the historic norm. That is the alarming bottom line from a recent Kauffman study that shows the U.S. jobs problem pre-dates the Great Recession of 2007-2009. The research suggests that the country faces a far more fundamental employment challenge—a long-term trend that the researchers call a slow jobs "leak."

The new study, the next in a continuing series on firm formation and economic growth, found that the new businesses that continue to generate the bulk of the economy's net job gains in recent years have been starting up with fewer workers than historic norms and are also adding fewer workers as they grow. Starting Smaller; Staying Smaller: America's Slow Leak in Job Creation said its analysis of government data shows that since the middle of the last decade and perhaps longer, the growth path and survival rate of new businesses means they are generating fewer and fewer new jobs. The cohort of new firms that started in 2009, for example, is on course to contribute one million fewer jobs in the next decade than historical averages would suggest.

The researchers said that rather than focusing on discrete events such as the opening of a new manufacturing plant or relocation of a large business to a local community, policymakers must recognize that the long-term jobs outlook will be driven by the collective decisions of young and small businesses whose changing employment patterns are hard to identify or influence. They also warned against the false hope that growth in the number of self-employed workers can resolve the U.S. employment shortfall.