Startups Key to Job Growth

New businesses are the most important source of new jobs, researchers say. And that’s just counting people who are on the payrolls of firms that get counted in official job statistics.

According to a paper that Small Business Administration economist Ying Lowrey is to present at the American Economic Association’s annual meeting in Denver early next month, the actual role of startup businesses in employment may be far greater than official employment statistics suggest. Many startup companies have yet to be incorporated, she says, and the entrepreneurs who toil at them are unpaid or self-employed workers aren’t counted in official tallies.

“These unpaid and self-employed jobs make contributions to the economy, involving millions of individuals, but are not incorporated in the job counts that are the basis of much scholarly research,” Ms. Lowrey writes.

How many jobs are we talking about? Using data from a University of Michigan panel study of entrepreneurs, a Kauffman Foundation survey of new businesses and a Census Bureau survey of small business owners, she estimates that between 1997 and 2008 new entrepreneurial businesses created 3.5 million new jobs a year. One million of those were for paid employees; the remaining 2.5 million were the jobs entrepreneurs created for themselves.

The dearth of data on the role startups play in employment is a problem, because it may be leading the government to not direct as much effort toward helping entrepreneurs as it should, suggests Ms. Lowrey. “To encourage job creation, policymakers need to recognize that startup business owners are creators of jobs for others, but most importantly, for themselves,” she writes.

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