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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

    Writer: | Last updated: June 1, 2012

    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.

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    Media analysis

    Read the study-related CNN Money article titled "Startups Make Up a Smaller Share of U.S. Businesses."

    1. Reporter's use of the study: Evaluate what the reporter chose to include and exclude from the study. Would the audience have acquired a clear understanding of the study's findings and limits from this article?
    2. Reporter's use of other material: Assess the material in the article that is not derived from the study. For example: Does the reporter place the study in the context of other research and to what effect? Does the reporter include reactions to the study from other researchers or interested parties (e.g., political groups, business leaders, or community members) and are their credentials or possible biases made clear?

    Study analysis

    Read the study titled "Where Have All the Young Firms Gone?"

    1. What are the study's key technical term(s)? Which ones need to be put into language a lay audience can understand?
    2. Do the study’s authors put the research into context and show how they are advancing the state of knowledge about the subject? If so, what did the previous research indicate?
    3. What is the study’s research method? If there are statistical results, how did the scholars arrive at them?
    4. Evaluate the study's limitations. (For example, are there weaknesses in the study's data or research design?)
    5. How could the findings be misreported or misinterpreted by a reporter? In other words, what are the difficulties in conveying the data accurately? Give an example of a faulty headline or story lead.

    Newswriting and digital reporting assignments

    1. Write a lead, headline or nut graph based on the study.
    2. Spend 60 minutes exploring the issue by accessing sources of information other than the study. Write a lead (or headline or nut graph) based on the study but informed by the new information. Does the new information significantly change what one would write based on the study alone?
    3. Compose two Twitter messages of 140 characters or fewer accurately conveying the study’s findings to a general audience. Make sure to use appropriate hashtags.
    4. Choose several key quotations from the study and show how they would be set up and used in a brief blog post.
    5. Map out the structure for a 60-second video segment about the study. What combination of study findings and visual aids could be used?
    6. Find pictures and graphics that might run with a story about the study. If appropriate, also find two related videos to embed in an online posting. Be sure to evaluate the credibility and appropriateness of any materials you would aggregate and repurpose.

    Class discussion questions

    1. What is the study’s most important finding?
    2. Would members of the public intuitively understand the study’s findings? If not, what would be the most effective way to relate them?
    3. What kinds of knowledgeable sources you would interview to report the study in context?
    4. How could the study be “localized” and shown to have community implications?
    5. How might the study be explained through the stories of representative individuals? What kinds of people might a reporter feature to make such a story about the study come alive?
    6. What sorts of stories might be generated out of secondary information or ideas discussed in the study?