Startups Create ALL the Jobs

I was a little sad listening to President Obama talk about his job creation plans last week.

Most of us in North America would agree that our highest economic priority is finding ways to create more new jobs.

My take on Obama’s plans is that he proposes to borrow more, or tax more, to subsidize companies to hire the people who are least employable. He also plans to require companies to “buy American” as long as that won’t increase prices more than 25%. In my opinion, borrowing, taxing and raising prices are all going in the wrong direction.

I wish Obama, and our other elected leaders, could appreciate that startups create ALL the new jobs in our economy.

The Kauffman Foundation recently published some fascinating new research clearly showing that all of the job creation in the American economy over the past 30 years has come from startups.

Startups Create ALL the Jobs

From the Kauffman Foundation press release: “The study reveals that, both on average and for all but seven years between 1977 and 2005, existing firms are net job destroyers, losing 1 million jobs net combined per year. By contrast, in their first year, new firms add an average of 3 million jobs.” (A PDF of the study is also available at that link.)

If governments want to make a difference in creating jobs, they should focus on:

  • encouraging more people to become entrepreneurs, and
  • initiatives that will create more startups.

In a post last week, I discuss how big companies haven’t been creating wealth for their employees from share price appreciation. The graph above shows the same thing – in general, big companies in North America just aren’t prospering in the new, global economy. The economic growth, and wealth creation, is happening in startups.

7 thoughts on “Startups Create ALL the Jobs”

  1. Hi Basil,

    I am very excited about your talk on Oct’ 20 for ByzHub.

    I am a program director in a non-profit community organization for the Jewish Community in Vancouver. One of the programs that I have initiated is an entrepreneurship program, or a business competition with the aim of helping young entrepreneurs bring their ideas to reality in the form of viable businesses. One of the believes that drove me to initiate the program is exactly what you talk about in this post. Of course, my belief was based strictly on intuition. And you provided here an undeniable proof for that.

    I wonder if you would be interested in taking a look at the plan for the program (I have a prepared presentation) and provide me with some feedback.

  2. I see Obama trying to move things in a positive direction, but he stands on a pyramid of government people where you could only lean one way or another so far before you lean too far and topple off of the top. Take the example with Hewett Packard where the president of that company said let’s stop building X, now let’s build Y around mid August. Many people below are not set up or prepared to suddenly begin doing Y when they have been doing X for years or decades. I imagine the government pyramid isn’t prepared to lean one way or another (too quickly).

    What you mention above (about stimulating jobs, let’s buy American) are the closest and most visible levers he can work with, but things seem broken at a level that would take more than his 4 or 8 year term to fix. If you follow the slashdot reader commentary you see these smaller details, like a broken patent system, laws that need fixing, etc., which seem more for protecting those already established, that for fostering those attempting to get there.

    Hope to see you on the 20th. Always best to learn something from those that did versus those that theorize.

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