Business Dynamic Statistics also indicate that business startups remain robust even in the most severe recession
(KANSAS CITY, Mo.), Jan. 14, 2009 – In the midst of record unemployment, a new Kauffman Foundation-funded U.S. Census Bureau study reports that startup companies are a major contributor to job creation. The Business Dynamic Statistics (BDS) also indicate that while business startups decline slightly in most of the cyclical downturns, startups remain robust even in the most severe recession over the sample period (in the early 1980s).
"Job growth is essential for our economy to rebound, and this study shows that new firms have historically been an important source of new jobs in the United States," said Robert E. Litan, vice president of Research and Policy at the Kauffman Foundation, which funded the BDS. "Our research into the early years of business formation consistently shows how vital new firms are to our economy, and this data should give policymakers and budding entrepreneurs alike great hope for how we can solve our current crisis—create and grow jobs through entrepreneurship."
The BDS data show that employment accounted for by U.S. private-sector business startups over the 1980-2005 period was about 3 percent per year. While still a small fraction of overall employment, these jobs from startups reflect new jobs, which is a large percentage compared to the average annual net employment growth of the U.S. private sector for the same period (about 1.8 percent). This pattern implies that, if you exclude the jobs from new firms, the U.S. net employment growth rate is negative on average.
Micro firms (firms with one to four employees) accounted for a large percentage of new jobs in any given year—about 20 percent on average. Although substantially larger startup firms (those with 250 to 499 employees) created a considerably smaller percentage of jobs in any given year—about 1.3 percent of employment in this firm-size class—their numbers still are substantial relative to net growth.
Although the overall business startup rate in the BDS does not exhibit much of a trend, the data do reveal a declining trend in the micro-firm business startup rate. This may reflect compositional changes in sectors such as retail trade, where there is ample evidence of substantial shifts away from small, single-establishment firms to large, national firms.
This report is the first of three study briefs to be released that highlight BDS data; the next reports will be released in January and February 2009. BDS includes measures of business startups, establishment openings and closings, and establishment expansions and contractions in both the number of establishments and the number of jobs. The BDS data provide these new statistics on an annual basis for 1977-2005, with classifications for the total U.S. private sector by broad industrial sector, firm size, firm age and state. Further information about the BDS can be found at http://www.ces.census.gov/index.php/bds/bds_home.
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