Where have all the U.S. startups and young firms gone?

 
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According to a 2012 report from the U.S. Census Bureau and the University of Maryland, startups and “young firms” — those founded five or fewer years before — contribute significantly to job creation in the United States. In 2010 they created 2.3 million jobs, and it’s a good thing too: During the same period the economy as a whole lost more than 1.8 million positions, meaning it would have been far worse without smaller firms. But the report also highlights some worrisome trends, including a long-term decline in the number of jobs created by newly established firms.

The report, “Where Have All the Young Firms Gone?” used the Census Bureau’s Business Dynamics Statistics (BDS) data to better understand trends in job creation in the United States. Its findings include:

  • During the 1980s, startups and young firms created up to 4% of all jobs in the United States. By 1990 the rate dropped to 3%, and between 2006 and 2010, it declined to 2%.
  • The share of job creation from startups and young firms fell from 40% in the 1980s to 30% in 2010.
  • The share of total U.S. employment at young firms has fallen from more than 20% in the 1980s to just 12% in 2010.
  • Startups have declined from as high as 13% of all firms in the 1980s to as low as 7% in 2010.
  • In the 1980s, young firms made up nearly 50% of U.S. companies; by 2010, the rate had fallen to less than 35%.
  • “The largest declines [in startups and young firms] are concentrated in the West, Southwest and South. These are all regions hit especially hard during the recession.”

“Historically, startups have contributed substantially to job creation by themselves,” the report’s authors write. “While many young businesses fail, the young businesses that have survived have exhibited high average growth rates…. [And] while we don’t yet know the reasons, the evidence presented here on the secular and cyclical declines implies that, if nothing else, the contribution of such entrepreneurial activity has declined.”

Tags: economy, employment, entrepreneurship, small business

Last updated: June 1, 2012

 

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Citation: Haltiwanger, John; Jarmin, Ron S.; Miranda, Javier, "Business Dynamics Statistics Briefing: Where Have All the Young Firms Gone?" Social Science Research Network, May 2012.