The importance of firm formation to net job creation raises the question: Over time, are newly formed businesses employing more or fewer people? Given the number of net new jobs created from firm formation, a decline in startups’ average employment could pose problems for our economy’s ability to generate the jobs we need to reduce current levels of unemployment.
To figure out what has been happening to the initial employment of new businesses, I took a look at data from the Longitudinal Business Database of the U.S. Census (see figure below). The vertical axis measures the average number of employees per new business in its founding year. The blue bars show the average number of employees in new firms by year. The black line shows the five year moving average of that figure.
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Author: Scott Shane
