The Federal Reserve Bank of Minneapolis has a nice piece out examining many of the same issues we looked at in Starting Smaller; Staying Smaller: America's Slow Leak in Job Creation but from a five state perspective.  I particularly enjoyed their interviews with some local entrepreneurs and service providers to provide additional reaction and context to some of their findings.  The five states they examine, because of their geographic responsibilities, are quite interesting on this topic - Minnesota and Wisconsin (not doing that well) and North Dakota, South Dakota, and Montana (doing better).  But even those states doing OK by the measures examined are only just holding steady.  Indeed, it's not that you're seeing better survival rates, better job creation, or better numbers of starts but that those things are trending down for the latter states.  This piece is worth a read and if you're doing a similar type of analysis at the regional level in the U.S. please let me know.  

In Starting Smaller; Staying Smaller: America's Slow Leak in Job Creation, we focus on declining contributions of new and young firms to employment in the U.S. over the last decade.  And when people ask why this matters I say because "what you are born with is what you have to live with."  This is the most important thing I have learned from studying business dynamics at the national level.

What do I mean?  Look to the following chart from the report:



When we follow businesses born in the same year over time it becomes apparent that they follow some steady trends.  Namely, your total cohort employment tends to be fairly sticky at age 2 (the solid red line above), about as many hirings as firings in total, but by age 5 the total employment of the cohort has dropped to 90 percent of its initial total (dotted red line above).  Anything below 1 on this graphic means that the cohort of businesses has lost jobs in comparison to what they were born with; above it means the cohort has gained jobs in total.  Notice that the lines on this graphic are almost always below 1.  So, when a cohort of new businesses starts with less employment, it keeps less employment as it ages.  The BLS and Census data show that in the last 35 years, what a business cohort has started with in terms of employment is likely to be that cohort's maximum employment over time.  

As we point out in the report, the cohort of businesses started in 2009 began with between 700,000 and 1,000,000 employees fewer than would have been expected historically.  There is also evidence from BLS that this slow down in employment generation has been going on for much longer.  Thus, it seems we have been accumulating recent new business cohorts with less employment potential.  And indeed, what people fail to realize is that the population of U.S. businesses is just like the population of U.S. - a steady accumulation of years of small changes which often go unnoticed at any point in time (see Neutralism and Entrepreneurship for a good discussion).  In the U.S. case, new businesses provide a new lifeblood of business activity, fueling hiring, entry of more productive business concepts, and the like.  Individual U.S. businesses come and go but on the average there is a steady and slow accumulation of businesses, driven by new entrants over time.  With fewer and fewer jobs at the start and declining rates of employment retention in cohorts of businesses, as shown above, America's slow leak in job creation accumulates into a major part of America's jobs crisis.  

One of my favorite parts of the research I did for Starting Smaller; Staying Smaller: America’s Slow Leak in Job Creation was the creation of business growth charts.  Any parent has seen growth chats in their doctor's office when they take in a child.  They are a means of benchmarking your child's growth against the trends of past generations, providing you an objective way of understanding if your child is growing slowly or somehow might be showing signs of sickliness.  The business growth charts where modeled on this concept, and while this piece of my analysis didn’t make it into the final paper, I wanted to offer a snapshot of it for some of my readers on Data Maven because I think it is a very simple format that can tell a powerful, if complicated message.

Anyone following my blog knows that I have been spending a lot of time looking at jobs numbers in the U.S. as of late and am happy to say today that my report is finally out.  Starting Smaller; Staying Smaller: America's Slow Leak in Job Creation is a look at long-term trends around job creation by young, U.S. employer firms.  Employer firms are important to track because they are the bigger starts, those with employees, and thus tend to have more of an employment impact on the larger U.S. economy.  I think for too long we have used tallies of new business starts as benchmarks of the health of the U.S. entrepreneurial system.  What this report shows is that young businesses have been undergoing some major change in the last decade, particularly related to their employment patterns, and that the immediate as well as accumulated effect of these changes is a major reason for the United State's current unemployment problem.  New businesses remain a critically important source for net job growth, but they are starting smaller and growing less in their first five years in comparison to historical trends. Throughout the week I'll be posting some portions of the report as well as some things that didn't quite make the final report but that I think are still very telling and of interest to a more technical audience.  Here are a few of the most important charts from the report.