1. Startups are small businesses that create many new jobs, though conventional wisdom is that larger businesses create more jobs. However, the data shows that it is startups, not small businesses generally, that are driving job growth. 2. While most startups fail, the startups that do survive grow very quickly and are responsible for a large share of job creation. A small fraction of high-growth young firms account for the outsized job creation by young businesses. 3. Rates of new business formation (startups) have been declining in the U.S. economy, which accounts for a substantial portion of the broader decline in business dynamism and fluidity in the labor market. The decline in

1. Startups in the U.S.
Remarks By John Haltiwanger
University of Maryland
September 2015
1
Without implication this presentation draws heavily on joint work with
Steven Davis, Ryan Decker, Ron Jarmin and Javier Miranda

2. -0.050
0.000
0.050
0.100
0.150
0.200
Net Employment Growth by Base Year Firm Size
Conventional wisdom is that most net new jobs
are created by small firms.
2

3. 0
0.05
0.1
0.15
0.2
0.25
Share
Shareof Employment in Startups by Firm Size Class
But what is driving this is startups – startups are small and create many jobs
3

4. -0.050
0.000
0.050
0.100
0.150
0.200
Net Employment Growth by Base Year Firm Size
Base Year Size Base Year Size with Age Controls
Controlling for firm age, there is no systematic relationship
between firm growth and firm size
4

5. 0
0.05
0.1
0.15
0.2
Firm Age
Up or Out Dynamics of Young U.S. Firms
Net Employment Growth (Continuing Firms) Job Destruction from Exit
Most startups fail. But conditional on survival they are the
fastest growing firms.
5

6. It is a small fraction of high growth young firms that accounts for
the high mean growth of surviving young firms.
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16+
Firm Age
Distribution of Firm Growth Rates
Median 10th/90th Percentile
High Growth Young Firms are also high in the Productivity/Innovation Distribution.
6

7. 0
10
20
30
40
50
60
Startups High Growth Existing Firms
Startups and High Growth (Annual Growth>25 percent) Existing Firms
Disproportionately Create Jobs, U.S. Private Sector
Share of Firms Share of Job Creation
Source: Tabulations from Firm-Level Data Used in Haltiwanger, Jarmin and Miranda (2011)
High Growth Firms are disproportionately young
7

8. Startup Rate in Nonfarm Private Sector, 1981-2012
Share of Employment for Young Firms,
1981-2012, Nonfarm Private Sector
0.06
0.07
0.08
0.09
0.1
0.11
0.12
0.13
0.14
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
Startup Rate
Exit Rate
0.06
0.08
0.1
0.12
0.14
0.16
0.18
0.2
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
Declining Entrepreneurship Accompanies
and “Accounts” for Substantial Fraction of
the Decline in Measures of Business
Dynamism and Labor Market Fluidity
Given the importance of startups
and high growth young firms for
job creation and productivity, the
decline in startups is a source of
potential concern.
8

9. The Decline in Startups is Linked to a Broader Decline
in Labor Market Fluidity in the U.S.
Source: BLS BED and JOLTS DATA
8.0
13.0
18.0
23.0
28.0
33.0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Worker Reallocation (H+S)
"Excess" Churning (H-JC=S-JD)
Job Reallocation (JC+JD)
Labor market fluidity contributes to productivity and wage growth
9

10. 0
5
10
15
20
25
30 Manufacturing
Retail
Information
FIRE
Services
Economywide
Figure 4 from Decker, Haltiwanger, Jarmin and Miranda (2015)
Share of Employment at Young (Age<5) Firms in Selected Sectors
Some of the decline in startups has been in
sectors like Retail Trade reflecting a change
in the Business Model towards large, national chains
Key innovative sectors like Information
have declines in startups post 2000
10

11. The Acceleration of the Decline Post-2000 in Business Dynamism
Due to Decline in Upper Tail of Firm Growth Rates
Showing HP Trends
10
15
20
25
30
35
40 90-50 All firms
50-10 All firms
11

12. 10
15
20
25
30
35
40 All firms
This is also evident in an an acceleration of the decline in High
Growth Firms in the post 2000 period
90th Percentile
12

13. 0
10
20
30
40
50
60
70
90-50 Young
50-10 Young
90-50 Old
50-10 Old
Decline in High Growth Firms is Both Composition Effect (fewer young firms)
And Decline in High Growth Amongst Young Firms (again especially post 2000)
13

14. 30
35
40
45
50
55
60
65
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
90-10 Gap for High Tech shows sharp decline post 2000
0
5
10
15
20
25
30
35
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
90-50 Tech
50-10 Tech
Sharp Decline in 90-50 vs. 50-10 post
2000
High Tech Sector Exhibits Rising
Dispersion and Skewness in 1990s
and then Sharp Declines Post 2000.
High Tech sector has decline in
high growth activity in post 2000
period
14