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New Businesses, Not Small Businesses

Mark Marich

According to a new paper by Ying Lowrey, an economist with the Small Business Administration, new businesses—not small businesses—are the most critical driver of new jobs. Using data from the Kauffman Firm Survey and other sources, Lowrey estimates that on average, each new startup is responsible for 5.6 jobs created and that:

“Considering that millions of firms start every year in the United States, this is a massive productive human capital injection to the economy, with concomitant vibrant economic activities including inventions or innovations of new technologies; creation of new products, new services, or new markets; excavation of financial resources; employment of new workers; and management and maintenance of business operations.”

So if all these new jobs are being created, why does the national unemployment rate hover near 10%? Lowrey points to a structural change in international and domestic markets based on advances in technology.

“The comparative advantage of the United States has shifted from manufacturing and other traditional industry sectors that required large numbers of workers toward new growth sectors such as information and communications, green technologies, health care, biotech and nanotech—sectors in which the potential for both employment and entrepreneurial jobs abounds. To encourage job creation in these frontier sectors, policymakers need to recognize the effectiveness and importance of business creation for job creation.

The paper, Estimating Entrepreneurial Jobs: Business Creation is Job Creation, will be presented at the American Economic Association’s annual meeting in Denver early next month.

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