New firms and young businesses account for about 70 percent of job creation in the U.S. A new study, Business Dynamics Statistics Briefing: Job Creation, Worker Churning, and Wages at Young Businesses, from the Ewing Marion Kauffman Foundation drills down to consider three key characteristics of jobs — job creation, worker churn, and earnings per worker.
- Four out of every 10 hires at young firms (those in their first two years) are for newly created jobs. In more established firms that rate fluctuates between 0.25 and 0.33.
- This 40 percent rate of job creation is much higher than young firms’ 25 percent share of combined employment.
- Fluctuating around 20 percent, job creation rates for businesses less than one-year-old are 2X those in firms aged two to ten years and 4X the rates for businesses older than that.
- Net job creation in the youngest firms to range between 6 to 10 percent, bust to boom. Net job creation rates for mature businesses ranges from better than 5 percent in good times and into negative territory during recessions.
- The share of separations due to job destruction at new firms is in line with that experienced by older firms.
- There has been an upward trend in the decline of worker churning for all firms over the last 10 years. Whether because of caution or because the jobs aren’t there, the impact of fewer individuals changing companies to advance their careers reflects a decrease in the potential for earnings growth.
Earnings per Worker
- Workers at young and small firms have substantially lower earnings than workers at larger and more mature firms.
- This may be related to the well-known fact that salaries are lower at younger companies, with earnings more tied (for example with stock options) to future success.
- However, the wage premium for employees at larger firms has been increasing over time. The study authors suggest that this finding warrants more review.