April 25, 2016

Job Creation by Startups and Young Companies

OLR Report 2016-R-0003 describes how startups and young companies contribute to job creation.

Research shows that startups are the primary driver of job growth in the U.S. economy and account for nearly all net new jobs in a given year.  Job creation by startups has driven net job growth in nearly every year since 1977. 

Although startups are the primary driver of net job creation in the U.S. economy, young firms contribute disproportionately to net job growth among existing firms.  Firms age one to five account for nearly two-thirds of net job creation.  While the oldest firms account for the largest share of current employment, the youngest companies account for the largest share of net job creation.

The research on new and young firms driving job growth runs counter to the commonly-held belief that small businesses drive job creation.  While early empirical research found a relationship between firm size and job creation, subsequent studies have found significant pitfalls with the studies’ supporting data, such as the lack of information on firm age. Research including data on firm age shows that it is new and young firms, which are generally also small due to their age, that drive job creation.  In fact, small, mature businesses have negative net job creation.

For more information, read the full report here.