Firm age and job creation in the US

Abstract

Small firms are often characterized as the engines of job creation. Yet empirical evidence increasingly shows that firm age is more important than firm size as a determinant of employment growth. New businesses drive job growth, and are especially important for the employment of younger workers. However, young firms have high demand for credit and borrow relatively more than older businesses. A well-functioning start-up economy is thus necessary to achieve a healthy labor market. In order to achieve this, it is essential that entrepreneurs have access to the credit that they need to start and grow their businesses. ELEVATOR PITCHEntrepreneurship is essential for a healthy labor market. Recent evidence shows that young businesses (at most ten years old) have, on average, accounted for all of US employment growth over the past few decades. New businesses are especially important for youth employment. However, these businesses tend to borrow a lot, and the credit constraints they face limit their ability to create jobs. Historically, much of the discussion regarding the economic importance of entrepreneurship has focused on small businesses. Empirical evidence increasingly suggests that, among small businesses, those that are young create the most jobs.