The Importance of Young Firms for Economic Growth by Jason Wiens and Chris Jackson, September 25, 2014

“More than six years after the Great Recession, the American economy finally gained back all of the jobs lost during the economic downturn. While this is positive news, underlying structural concerns remain, resulting in historically low labor force participation, high rates of unemployment and underemployment, and a “missing generation” of firms. Together, these factors are a drag on the economy, sapping dynamism. Policymakers often think of small business as the employment engine of the economy. But when it comes to job-creating power, it is not the size of the business that matters as much as it is the age. New and young companies are the primary source of job creation in the American economy. Not only that, but these firms also contribute to economic dynamism by injecting competition into markets and spurring innovation. Representing 95 percent of all U.S. companies, businesses with fewer than fifty employees are undoubtedly important to overall economic strength. So too are the relatively few large companies, which employ millions of Americans. Yet, neither group contributes to new job creation in the way young, entrepreneurial firms do. In fact, between 1988 and 2011, companies more than five years old destroyed more jobs than they created in all but eight of those years. Yet, the startup news is not all good. The rate at which new businesses are opening has been steadily declining for years. Because of their out-sized contributions, this decline has troubling implications for economic dynamism and growth if it is not reversed.”