Start-up companies are a major contributor to job creation, even in the midst of significant economic downturns, a new U.S. Census Bureau study funded by the Ewing Marion Kauffman Foundation finds.
The first of three issue briefs to be released this year highlighting data from Business Dynamic Statistics (12 pages, PDF), the report, Jobs Created From Business Startups in the United States (4 pages, PDF), found that while business start-ups declined slightly during most cyclical downturns, start-ups remained robust even in the most severe recession over the sample period.
According to BDS data, private sector business start-ups accounted for approximately 3 percent of overall employment per year from 1980 to 2005. While a small fraction of overall employment, it was a large percentage compared to the average annual net employment growth of about 1.8 percent over the same period. According to the report, the pattern suggests that if jobs from start-ups were excluded, the rate of U.S. net employment growth would be negative over the sample period.
The report also found that firms with fewer than five employees account for roughly 20 percent of new jobs in any given year, while substantially larger start-up firms — those with 250 to 499 employees — account for approximately 1.3 percent of employment in their size class.
"Job growth is essential for our economy to rebound, and this study shows that new firms have historically been an important source of new jobs in the United States," said Kauffman Foundation vice president of research and policy Robert E. Litan. "Our research into the early years of business formation consistently shows how vital new firms are to our economy, and this data should give policy makers and budding entrepreneurs alike great hope for how we can solve our current crisis — create and grow jobs through entrepreneurship."