According to Charles Gascon, an economist at the St. Louis Federal Reserve, startups may create many jobs but often do not last long. Gascon noted that while a majority of jobs created from 2020 to 2021 are from startups or new companies, the net job creation for these companies is small and sometimes negative due to their high likelihood of closing down within five years, often due to low pay.
Gascon added that people often assume most of these startups are tech companies, but in reality, they make up only a small segment. A significant portion of startups are actually restaurants, small businesses, and professional service firms such as law or accounting firms. The composition of startups reflects the broader industry composition of the United States, with exceptions in industries with high barriers to entry like manufacturing or utilities production.
In addition to startups, businesses that have been around for at least 11 years also contributed significantly to the growing economy during the COVID-19 pandemic years. While there was positive net job creation from these businesses, it did not show up in the same way because many large firms laid off workers due to the pandemic and then started ramping up again.
According to Gascon’s analysis, startups account for about 2% of total employment in the US economy. Despite this low percentage, they still contribute significantly to job creation but also face challenges like closure within five years and low pay that can lead to small and sometimes negative net job creation.