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«The importance of startups in job creation and job destruction»

Thursday 26 May 2011, by Rose Blackburry

Job creation and destruction in the US have been studied by Haltiwanger et al using Census Bureau longitudinal data and show a rate of job creation that is around 18% of existing jobs with job destructions around 16%, leaving a net creation of around 2%.

Using time series from 1977, they were able to show that startups created «3 million jobs per year during 1992–2005, four times higher than any other yearly firm age group. For comparison, there are an average of 800,000 jobs created at firms in their first full year and 500,000 at firms in their third full year. In a given year, firms in the age group six to ten total 335,000 gross jobs created, for a typical year. That means that all firms in a latter age group create one-tenth the jobs created by startups. For example, in 2005, startups created 3.5 million jobs, compared to the 355,000 gross jobs created that year by firms founded in 1995. However, the 1995 firms also lost a gross 422,000 jobs. Indeed, existing firms in all year groups have gross job losses that are larger than gross job gains».

It should nevertheless be emphasized that the Census Bureau longitudinal data involve employer firms (with at least one employee at the creation). One very interesting fact is that Haltiwanger et al used firm statistics, not establishment statistics as one firm may have more than one establishment and that closing or opening one establishment may happen within a firm closing or opening.

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