Charles Gascon, an economist at the St. Louis Federal Reserve, shed light on the fact that while startups are responsible for creating a significant number of jobs in the United States, they often do not last. According to Gascon, the majority of the jobs created from 2020 to 2021 were from startups or new companies. However, despite this, the net job creation for startups is small and sometimes negative due to their high likelihood of closure within five years.
Gascon also pointed out that many people assume that most of these startups are tech companies, but in reality, they make up only a small segment. A large portion of startups are actually restaurants, small businesses, and professional service firms like law or accounting firms. The composition of startups mirrors the broader industry composition of the United States, with exceptions in industries with high barriers to entry such as manufacturing or utilities production.
In addition to startups, businesses that have been around for at least 11 years also contributed to the growing economy during the COVID-19 pandemic years. While there was positive net job creation from these businesses, it did not show up in the same way because many large firms laid off workers due to the pandemic and then started ramping up.
According to Gascon’s analysis at St. Louis Federal Reserve Bank, startups account for only about 2% of total employment in US economy overall. Despite this fact that startups create a significant number of jobs; their high likelihood of closure within five years and low pay contribute to small net job creation which can be sometimes negative