Startups are Critical for Lane County Job GrowthNovember 8, 2021 New businesses primarily make headlines when they introduce new products or ideas, but they also play a critical economic role. Newly founded businesses (or “startups”) create jobs where none existed before, making them a crucial contributor to employment growth.
The Business Dynamics Statistics (BDS) program, which tracks job gains and losses through business openings, closings, expansions, and contractions, just released a new data explorer tool, which I used to look at how firms of different ages contribute to job growth in Lane County.
A “firm” is a legal business or corporate entity consisting of one or more “establishments,” or physical places of businesses. A credit union system under one corporate umbrella would be a firm, whereas that credit union’s branch on Main Street would be an establishment.
BDS provides data based on firms or establishments, but for this analysis I looked at firms by “age,” or years since their first year with employees. Firms with an age of zero didn’t have any employment the year before, which covers most new employer firms and excludes new branches of existing businesses.
These data look at job “creation” and “destruction” – the overall gain and loss of jobs – in Lane County. We can also subtract destruction from creation to show “net job creation” – the amount of total change.
Focusing on just the blue bars, firms that are 11 years or older contributed the most to new job creation. All firm ages created jobs, but (looking only at the positive side of the ledger) employment growth at older firms made up nearly 50% of the total.
However, when it comes to job destruction, older firms contribute the most as well. In fact, the oldest firms have a net negative contribution when you add all the creation and destruction together, which is also true for firms 1-5 years. Only startup firms and firms age 6-10 created jobs on net in 2019.
While surprising, these findings aren’t unique to Lane County. In 2019, there was net negative job creation at all employer ages in Oregon and the U.S. aside from startups. In many years and in many places, without new business startups, there would be a net decline in employment – for example, Lane County, Oregon, and the U.S. in 2019.
Startups’ economic contributions underscore a potentially worrying trend: across the U.S., fewer people work at startups than in the past. Over the last 20 years in Lane County, the percentage of workers at firms younger than 11 years shrank from 27% to 18% of employment. Only 2% were employed at startup firms in 2019.
Across the U.S., despite the importance of startups in job creation, a large and growing percentage of employment is at older and larger firms. Part of that is due to industry consolidation. Another key reason is that fewer people are starting businesses now than in generations past.
At least, that was true up through 2019. Beginning in the summer of 2020, after a brief decline post-COVID, new business applications in Oregon and the U.S. have grown quickly, and exceeded levels seen for several decades. As of fall 2021, each month sees about 60% more new business applications in Oregon than the typical month in the early 2010s.
The increase in business foundation is good news for local economic dynamism. And while it’s not clear exactly what’s driving the trend, as we’ve seen, more business starts is good news for job creation as well.