from the St Louis Fed
Success stories such as Facebook, Amazon, and Google show that a startup has the potential to become a big employer. But how important are startups to the U.S. labor market when they’re still young firms? Across a swath of industries, startup companies are hiring proportionally fewer workers compared with older companies, according to a recent Regional Economist article.
Economist Sungki Hong and Research Associate Devin Werner analyzed startups’ share of U.S. employment from 1994 to 2018. To do this, they used Business Employment Dynamics, a program of the Bureau of Labor Statistics.1
Startup Employment Nationally
Hong and Werner found that startups’ share of employment has declined. Nationally, startup employment represented 2.2% of employees2 in 1994, but that number had slipped to 1.4% by 2018.
The 2007-2009 financial crisis accelerated the drop in the startup share of employment, but the share since then – while still lower than in 1994 – has been relatively stable, they noted.
Startup Employment in the Eighth District
A similar pattern holds in each of the seven states of the Eighth District.3 Startups represented 2.1% of jobs in 1994 but only 1.2% in 2018, the authors noted, adding that this share declined in every District state.
Trend Holds across Industries
Hong and Werner then took industry-level data to determine if this pattern was due to a particular industry. They selected four industries to examine: construction, leisure and hospitality, information, and manufacturing. The authors found that startups in all four industries accounted for a declining share of employment.
Nationally, construction startups accounted for 4.4% of employment but slid to 1.9%. Likewise, the share of employment from manufacturing startups declined from 1.0% to 0.4%. A similar trend occurred with those four industries located in Eighth District states as well, Hong and Werner noted.
Notes and References
1 Startups are defined as firms less than one year old that were issued an employer identification number by the IRS.
2 Numbers of employees are counted based on firm-reported filled jobs, whether full- or part-time and temporary or permanent. A single individual holding multiple jobs could be counted multiple times in the data.
3 This analysis encompassed the totality of the seven states in the Eighth District: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.
Additional Resources
- Regional Economist: Trends in Startups’ Share of Jobs in the U.S. and Eighth District
- On the Economy: Which Firms Create More Jobs: Startups or Older Firms?
- On the Economy: The Financial Challenges of Startups
Source
https://www.stlouisfed.org/on-the-economy/2020/june/startups-account-smaller-share-us-jobs
Disclaimer
Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.