Startups Starting Smaller, Adding Fewer Jobs To U.S. Economy
The American economy is in a sorry state, if last week's grim jobs report is anything to go by. But startups are unlikely to provide the key to any broad-based jobs recovery.
That's because new businesses are starting smaller, folding faster, and adding fewer jobs to the economy than before, according to a new study from the Ewing Marion Kauffman Foundation.
The study describes a "slow leak" in jobs creation that predates the start of the recession in 2007.
Since 2006, according to the study, the annual number of new startups has fallen by about a quarter. They're starting out with fewer employees than they used to -- a trend that began sometime around the year 2000 -- and they're not lasting as long. Only 61 percent of firms established in 2007 survived longer than two years, compared with 65 percent of firms that got their start in earlier periods, the report says.
In the 1980s, startups accounted for about 3.5 percent of jobs created each year in the United States, according to the report. During the 2000s, that figure fell to 2.6 percent.
If the Kauffman study suggests that startups have played a modest role in the recovery to date, a new Chamber of Commerce report indicates that small business will play only a limited role in the coming year.
Sixty-four percent of small-business executives said they had no plans to expand their payrolls in the next year, according to a Chamber of Commerce report due to be released Monday, The Wall Street Journal reports.
Another 12 percent said they plan to cut jobs, while 19 percent said they expected to add employees.
More than half of the employers surveyed said that "economic uncertainty" was the main reason they weren't planning to hire new workers.
The National Federation of Independent Businesses announced last week that June saw a 7 percent drop in the number of small firms who increased their payrolls. Sixteen percent of small firms cut jobs in June, a 3 percent increase over the previous month.
In June, the NFIB released a report showing that optimism among small business owners had declined in March, April, and May of this year. According to the report, only 5 percent of those surveyed viewed the next three months as a "good time to expand."
Last week, the U.S. Treasury announced that six community banks had received a combined $123 billion as part of the Small Business Lending Fund, a program included in the Small Business Jobs Act that President Obama signed into law in September. In June, it was reported that the demand for loans among small business had risen for the first time in 16 quarters.
The national unemployment rate is 9.2 percent, according to the latest report from the Bureau of Labor Statistics. The U.S. added 18,000 jobs in June, a figure well below expectations. Job-creation figures for April and May were also revised downward by 44,000.