Friday, February 17, 2012

Dichotomy of Small Jobs

Here's an important observation I was unaware of. I'd always seen statistics showing that almost all the job creation in the country is via small business - footing the idea of creative destruction, that as part of economic growth the old companies die and are replaced by the new.

Interestingly, it's easy to slide into an overly broad generalization that that small business creates jobs -which is true - but the deeper truth is that NEW STARTUP small business creates jobs, not existing longer-term small business.

This AP article gets a little politicky - but if you just ignore that part and read the economic references inside an interesting fresh observation is in there regarding new startups that I hadn't heard before:

"Haltiwanger and two other economists showed, in a study of millions of companies over 30 years, that small businesses no more than five years old — that's about 40 percent of them — are the only ones that create more jobs each year than they cut.

In 2005, for instance, more than 99 percent of the 2.5 million net new private-sector jobs in the United States came from these startups, according to the U.S. Census Bureau.

But the 60 percent of small businesses that have been around more than five years act as a slight drag on the number of jobs available in the United States. They have cut about 0.5 percent more staff than they have added in a typical year, according to Haltiwanger.

By contrast, big businesses, the ones that get all the headlines for layoffs, have hired more than they have cut — about 0.1 percent in a typical year."

Summary/Key Takeway: If we want job creation create incentives targeted not to small business broadly, but to NEW small business formation specifically.

Anyhow - I found that portion very interesting and not often discussed.

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