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Job Creation by Firm Age: Recent Trends in the United States

Entrepreneurship is often heralded as a driver of job creation. Research finds that young firms are responsible for most net new jobs. There is wide variation, however, in the number of jobs that young firms generate. While some new firms never hire employees and others are responsible for only modest job creation, a small share of new firms experiences extraordinarily high growth and creates a significant number of jobs.

Written by Jessica Looze and Thomas Goff

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Over the past several decades, there is evidence that job creation among new firms has declined – as has the share of U.S. employment attributable to these young firms. Startups are now creating fewer jobs than they did a quarter century ago, and fewer business applications today are resulting in new employer businesses than they did 15 years ago.

The number of jobs created by new firms is one indicator of entrepreneurship’s potential to provide opportunities for economic stability, mobility, and prosperity for entrepreneurs, the people they employ, and the communities in which they live and work. This statistic alone, however, is not sufficient.

During the COVID-19 pandemic, a spike in business applications was accompanied by a decrease in the proportion of applications for businesses that were likely to become employers and create jobs for anyone other than the entrepreneurs themselves. These trends raise important questions about the ability of young firms to continue to create new jobs today – and the extent to which they will be able to do so in the future.

The number of jobs created by new firms is one indicator of entrepreneurship’s potential to provide opportunities for economic stability, mobility, and prosperity for entrepreneurs, the people they employ, and the communities in which they live and work. This statistic alone, however, is not sufficient. In order to assess the relationship between entrepreneurship and inclusive prosperity, we must go beyond questions regarding the quantity of new jobs that entrepreneurs create and consider the quality of these jobs and their capacity to provide the stability and wages that allow individuals to support themselves and their families.

In this report, we explore these issues using the Kauffman Foundation’s new set of indicators, the Kauffman Entrepreneurial Jobs Indicators. These indicators include four measures related to the jobs created by new businesses in the U.S.:

  1. Creation
  2. Contribution
  3. Constancy
  4. Compensation

Creation and contribution are related to the quantity of jobs generated by firms of varying age groups, including startups that are less than 1 year old. Constancy and compensation present information on job quality. These indicators were constructed using two datasets from the U.S. Census Bureau: the Quarterly Workforce Indicators (QWI) and the Population Estimates Program (PEP). Download the full report to learn more about these indicators and their broad trends in the U.S. over time.

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