Kauffman Study on Why Job Market Will Remain Thin for Years to Come

I found this article by reading a blog post at Marginal Revolution. The full article on the Kauffman Study is here. Essentially, the study shows that, traditionally, new small businesses have generated about 3 million new jobs a year, averaging 7.5 new jobs per venture, whereas in the more recent years, new businesses have averaged only 4.9 new jobs per venture.

The article writes:

“The study also examined young companies’ size at birth, jobs created and survival patterns of new firms. They found that historically, new firms in the United States have generated about 3 million new jobs every year, but that recent cohorts have performed much worse, creating only 2.3 million jobs in 2009. At the level of individual businesses, one data series (BLS establishment data) showed that in the 1990s new establishments opened their doors with about 7.5 jobs on average, compared to 4.9 jobs today.”

I take issue with the idea that this lower job creation is somehow “worse” performance. Two reasons: 1) in the 90’s credit and venture capital was both abundant and liberally controlled, so it was likely possible to create new jobs whose payroll would be supported by borrowed monies or over-capitalized bank accounts. 2) It may be that computer technology has matured to the point where a single individual can do the work of two individuals just by being organized and working diligently. It is true that computer technologies have enabled the average worker to output more than ever before and it would stand to reason that increased output per worker would result in fewer jobs being created in new start-ups.

Finally, IIRC, the research shows that people are working longer hours, which would also contribute to fewer jobs being created. In my thinking, if fewer jobs are created but the businesses are still as profitable as before, then it would stand to reason that this is a *good* thing. Those who remain unemployed need to either start their own businesses or obtain training to increase their skill set and value in the marketplace so that they can better compete for the job openings that do exist.

Bill English, CEO
Mindsharp

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