Charles Gascon, an economist at the St. Louis Federal Reserve, stated that despite startups creating many jobs in recent years, they often do not last. According to Gascon, a majority of the jobs created from 2020 to 2021 are from startups or new companies. However, the net job creation for these companies is small and sometimes negative due to their high likelihood of closing down within five years, often due to low pay.
Gascon explained that many people assume most of these startups are tech companies, but in reality, they make up a small segment. A large portion of startups are actually restaurants, small businesses, and professional service firms like law or accounting firms. The composition of startups mirrors the broader industry composition of the United States, with exceptions in industries with high barriers to entry like manufacturing or utilities production.
In addition to startups, businesses that have been around for at least 11 years also contributed to the growing economy during the COVID-19 pandemic years. While there was positive net job creation from these businesses, it did not show up in the same way because many large firms laid off workers due to the pandemic and then started ramping up.
According to the Federal Reserve Bank of St. Louis, startups account for about 2% of total employment in the U.S economy. Despite this significant contribution, Gascon notes that their high likelihood of closure within five years and low pay contribute to small and sometimes negative net job creation.
In conclusion, while startups create a significant number of jobs in recent years, their high likelihood of closure within five years and low pay contribute to small and sometimes negative net job creation. It is essential for policymakers and entrepreneurs alike to understand this dynamic when making decisions that affect startup growth and employment opportunities in the United States.