Tech Starts: High-Technology Business Formation and Job Creation in the United States

High-tech startups are a key driver of job creation throughout the United States, according to research by technology policy coalition Engine and the Ewing Marion Kauffman Foundation. Though they start lean, new high-tech companies grow rapidly in the early years, adding thousands of jobs along the way.

Previous Kauffman research has shown that new and young firms are responsible for net job creation, not small businesses in general. This report contrasts business and job creation dynamics in the entire U.S. private sector with the innovative high-tech sector – defined here as the group of industries with very high shares of employees in the STEM fields of science, technology, engineering and math. These differences are highlighted at the national level, as well as detailing regions throughout the country where high-tech startups are being formed each year.

High-tech firm births were 69 percent higher in 2011 than in 1980, and drilling down within high-tech to isolate just the ICT sector (Information and Communications Technology), new firm births grew by 210 percent. At the same time, private-sector business creation was down 9 percent.

The report also finds that high-tech startups are springing up at a higher rate than all private-sector businesses. Relative to their share of firms in the economy, high tech is 23 percent more likely, and ICT as a segment of high tech is 48 percent more likely, than the private sector as a whole to witness a new business formation.

What's more, these high-tech startups are becoming increasingly geographically diverse, while the opposite is true for new businesses across the economy generally.

Top 10 Metro Areas for High-Tech Startup Density:

  1. Boulder, Colo.
  2. Fort Collins-Loveland, Colo.
  3. San Jose-Sunnyvale-Santa Clara, Calif.
  4. Cambridge-Newton-Framingham, Mass.
  5. Seattle, Wash.
  6. Denver, Colo.
  7. San Francisco, Calif.
  8. Washington-Arlington-Alexandria, DC-Va.-Md.
  9. Colorado Springs, Colo.

10.  Cheyenne, Wyo.

 
The report used data from the Business Dynamics Statistics (BDS) series, which is compiled by the U.S. Census Bureau and tracks the annual number of new businesses (startups and new locations) from 1976 to 2011. More information about the BDS can be found at the U.S. Census Bureau. The BDS represents the gold standard of business creation data. In contrast to other indicators that lump employer firms (those coming into existence with employees) together with non-employers and self-employment, the BDS tracks only employer companies. It also allows researchers to separate firms (unique businesses) from establishments (multiple locations of single firms, such as a new Starbucks location) and make important advances in data collection and policymaking.