Data from the U.S. Bureau of Labor Statistics (BLS) shows that while the number of new establishments created each quarter is increasing, the jobs they generate have been decreasing since the late ’90s.
The average new establishment currently employs half as new establishments did 30 years ago, a phenomenon identified as the shrinking ‘birth weight’ of start-ups.
This is significant for job creation in the US economy as new businesses – specifically those less than a year old – are key drivers behind net job gains in the US economy, according to the BLS:
“The only establishment age category that consistently creates more jobs than it loses is the category of establishments less than 1 year old. For every year on record except 2022, net job flows summed across all existing businesses resulted in net employment losses. However, in all but 5 years over the nearly 30-year history of the series, the jobs created by establishment births more than offset the net job loss at existing establishments and resulted in a yearly net employment gain for the economy as a whole”, the BLS said.
The decline in jobs is visible during the early years of a business’s life. Businesses born in the 2010s employ fewer people at 1-, 3-, and 5-year marks compared to those born in the 1990s. For example, start-ups from 1994 that survived five years grew to an average of 13.2 employees. In contrast, those born in 2017 that survived the same period grew to an average of only 8.2 employees.
- Haley Klundt and Kevin Cooksey, “The decline of job creation at new establishments,” Beyond the Numbers: Employment & Unemployment, vol. 12, no. 9 (U.S. Bureau of Labor Statistics, May 2023).