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CU System
Startups creating more jobs than established firms
KANSAS CITY, Mo. (12/5/12)--While credit unions advocate raising the member business lending (MBL) cap to help create more jobs at small businesses, a new report indicates that job creation and the hiring rate in firms less than two years old has outpaced job creation in more established firms.

The report, "Job Creation, Worker Churning, and Wages at Young Businesses," was released by the Kansas City, Mo.-based Kauffman Foundation, which specializes in entrepreneurship.

The study follows on other studies that "established the important role of startups and fast-growing young businesses in job creation and employment growth in the U.S. economy," said the report. It noted that "new firms and young businesses account for about 70% of gross job creation and disproportionately contribute to net job creation."

The current study, based on quarterly work force indicators in 28 states, finds that young firms, in the first two years of their lives "have higher job creation and job destruction rates than older firms. A substantial fraction of the job creation for young firms is due to the job creation that occurs in the quarter of starting up.

"However, there is substantial subsequent job creation as well as job destruction in the succeeding quarters in the first two years. The overall net job creation (the difference between job creation and destruction) is much higher for young firms than for older firms," said the report.

"Job creation rates for the youngest firms are twice those in the firm age range of two to 10 years, and four times as large as the rates for mature businesses (11-plus years old)," the report said, noting that  four out of every 10 hires at young firms "are for newly created jobs, much higher than in older firms, where the ratio fluctuates between 0.25 and 0.33."

Also, worker churn rate has slowed, which could indicate the economy is becoming less dynamic, said the Kauffman Foundation.  For workers with fewer opportunities to change companies and job roles, it will be harder for them to advance their careers and grow their earnings, said the report.

The report also indicated that the 2007/09 recession hit the youngest businesses much harder than the 2001 recession did. Despite being hit hard in the financial crisis, youngest businesses have had the most robust recovery, with their job creation rate growing from 0.18 to 0.23 between 2009 and 2011.

Credit unions currently have a limit of how much they can loan to small businesses--12.25% of assets. They are urging Congress to pass bills that would raise theMBL to 27.5%. The Credit Union National Association estimates that raising the cap would generate $13 billion in new funds for small businesses, which in turn could result in 140,000 new jobs the first year of enactment, at no cost to taxpayers.

For the full report, use the link.
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