Abstract
Although understandable in light of its traumatic impact, the Great Recession of 2007–2009 may be distracting attention from a more fundamental troubling economic trend. The United States appears to be suffering from a long-term leak in job creation that pre-dates the 2007–2009 recession and has the potential to persist for an unknown time. The heart of the problem is a pullback by newly created businesses, the economy’s most critical source of job creation, which are generating substantially fewer jobs than one would expect based on past experience.
In other recent research, the Ewing Marion Kauffman Foundation pointed to downward trends in job creation economy wide (see Haltiwanger J, Jarmin R, Miranda J (2011) Historically large decline in job creation from startup and existing firms in the 2008–2009 recession. Kauffman Foundation). In this report, part of the Kauffman Foundation Research Series on Firm Formation and Economic Growth, we flesh out these findings by examining job creation in young businesses over an extended period.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
See Izzo (2011).
- 2.
See U.S. Bureau of Labor Statistics (2011).
- 3.
See Samuelson (2011).
- 4.
See, for example, Haltiwanger et al. (2010).
- 5.
Data by firm age pulled from http://www.ces.census.gov/index.php/bds/bds_database_list.
- 6.
Data by firm age pulled from http://www.bls.gov/bdm/us_age_naics_00_table7.txt.
- 7.
While this data on establishment age dynamics had cleared the Census Bureau’s disclosure process, it was not published by the Census Bureau at the time of this research and was provided to assist in the investigation of some of the differing trends seen in the series.
- 8.
A further discussion of the distinctions of employer and nonemployer firms and their relative sizes and impacts on the economy is available here: http://www.census.gov/econ/smallbus.html.
- 9.
The Kauffman Index of Entrepreneurial Activity and the Small Business Administration’s annual tallies are but two examples. These two measures are discussed indepth in other recent papers that are a part of Kauffman’s Firm Formation and Economic Growth Research Series (http://www.kauffman.org/research-and-policy/firm-formation-and-economic-growth-research-series.aspx).
- 10.
This trend differs significantly from Kauffman’s own Kauffman Index of Entrepreneurial Activity (KIEA). The KIEA includes all types of business starts, both sole proprietorships and those firms engaging employees. The KIEA data suggest that the increase in the overall number of new firm starts in recent years has come from a rise in the former, not the latter.
- 11.
It is expected because of industry differences that these two series should have some variations in levels; the differing nature of when they begin to measure employment declines was not expected.
- 12.
See Bravo Biosca (2010).
- 13.
This finding is consistent with the data examined by Horrell and Litan (2010), showing that startup cohorts tended to keep about 80% of the jobs they initially created (though distributed differently among firms). Additionally, it should be noted, although not presented here, this trend toward early maximum employment contribution holds true at the most common broad industry categories available in the data. Thus, while there is certainly some part of the story here which is attributable to changes in the industries in which new businesses are being formed, this particular trend appears true.
- 14.
A recent article by Kowarski (2011) also highlights some of these issues.
- 15.
Indeed, in this study we have ignored self-employment patterns other than as included in the Kauffman Index of Entrepreneurial Activity. Earlier work, some of which Kauffman has sponsored, has attempted to better integrate data on the self-employed with the business data examined here (See Davis et al. (2009)). Although this study shows that a non-trivial percentage of employer businesses have histories, including a period of self-employment, larger-scale jobs growth for the economy as a whole is not likely to emerge from an increase in self-employment.
References
Bravo Biosca A (2010) Growth dynamics exploring business growth and contraction in Europe and the US. November: NESTA
Davis SJ, Haltiwanger J, Jarmin RS, Krizan CJ, Miranda J, Nucci A, Sandusky K (2009) Measuring the dynamics of young and small businesses: integrating the employer and nonemployer universes, NBER chapters. In: Timothy Dunne, J. Bradford Jensen, Mark J. Roberts Producer dynamics: new evidence from micro data. National Bureau of Economic Research, pp 329–366
Haltiwanger JC, Jarmin RS, Miranda J (2010) Who creates jobs? Small vs. large vs. young, August: NBER working paper no. 16300
Horrell M, Litan R (2010) After inception: how enduring is job creation by startups? Kauffman Foundation Research Series: Firm Formation and Economic Growth, Kansas City, MO
Izzo P (2011) Nearly 1 in 3 unemployed out of work more than a year, June 3: wall street journal. http://blogs.wsj.com/economics/2011/06/03/nearly-1-in-3-unemployed-out-of-work-more-than-a-year/
Kowarski I (2011) Freelance jobs: half of all new jobs in recovery?, June 13. http://www.csmonitor.com/Business/2011/0613/Freelance-jobs-Half-of-all-new-jobs-in-recovery
Samuelson L (2011) How to avoid our own lost decade, June 12. http://www.ft.com/intl/cms/s/b3c143b6-952d-11e0-a648-00144feab49a
U.S. Bureau of Labor Statistics (2011) How long before the unemployed find jobs or quit looking?, Issues in Labor statistics, Washington, DC
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2012 Springer-Verlag Berlin Heidelberg
About this chapter
Cite this chapter
Reedy, E.J., Strom, R.J. (2012). Starting Smaller; Staying Smaller: America’s Slow Leak in Job Creation. In: Calcagnini, G., Favaretto, I. (eds) Small Businesses in the Aftermath of the Crisis. Contributions to Economics. Physica, Heidelberg. https://doi.org/10.1007/978-3-7908-2852-8_4
Download citation
DOI: https://doi.org/10.1007/978-3-7908-2852-8_4
Published:
Publisher Name: Physica, Heidelberg
Print ISBN: 978-3-7908-2851-1
Online ISBN: 978-3-7908-2852-8
eBook Packages: Business and EconomicsBusiness and Management (R0)