Michael Horrell and Robert Litan
Ewing Marion Kauffman Foundation
We analyze a Business Dynamics Statistics (BDS) dataset broken out by firm age to determine how total employment in startups changes as startups age. Conventional thinking on employment from startups is that many of the new jobs created by startups evaporate over the course of just a few years as firms exit the market. By tracking cohorts of firms started from 1977–2000, we find this to not be the case. While many firms exit over the life of each cohort (destroying jobs), other firms also grow (creating jobs). This growth in employment partially balances out the jobs lost by closing and shrinking firms. We also look at how recessions affect employment in these cohorts of firms. We find that starting a firm during a recession does not affect employment levels five years later, but cohorts of firms exposed to prolonged recessions did experience significantly lower employment levels.
This study is part of the Kauffman Foundation research series Firm Formation and Economic Growth.