Business Dynamics Statistics show relationship between
firm age and job creation
(KANSAS CITY, Mo.), April 7, 2009 – Business startups that survive grow faster than more-established companies, according to newly released Business Dynamics Statistics—U.S. Census Bureau data funded by the Ewing Marion Kauffman Foundation. However, because entrepreneurial ventures also have higher mortality rates than older companies, they also have higher rates of job loss reflecting an “up or out” pattern.
The report, titled High Growth and Failure of Young Firms, highlights a single dimension of the Census Bureau’s new Business Dynamics Statistics (BDS). The BDS provides researchers with comprehensive data, broken out by firm age, that are necessary to understanding startup firms’ role in job creation.
The High Growth and Failure data show that very young firms (one year old) have a net employment growth rate of about 15 percent, if they survive, but about 20 percent of jobs at startups are lost due to business establishment closings in the first year. Older firms (age 29 and older), on the other hand, create jobs at a rate of about 4 percent, conditional on survival, and have a similar rate of job loss due to business establishment closings. Among surviving firms, average employment growth rates decline with the age of the firm.
"Because entrepreneurial companies generally are taking greater risks and have the potential for job creation that corresponds to fast growth, the data underscore the need to ensure an environment which allows entrepreneurs access to financing, mentoring and other resources that will help them to survive and thrive," said Robert E. Litan, vice president of Research and Policy at the Kauffman Foundation.
In terms of growth and survival, young firms are doing both better and worse than more mature firms. This “up and out” pattern highlights the trial-and-error nature of young firms that is an inherent feature of U.S. business dynamics.
This report is the fourth in a series of briefings to highlight some key features of the BDS data. BDS includes measures of business startups, establishment openings and closings, and establishment expansions and contractions in both the number of establishments and the number of jobs. The BDS data provide these new, annual statistics for 1977-2005, with classifications for the total U.S. private sector by broad industrial sector, firm size, firm age and state. Further information about the BDS can be found at the Census Bureau site.