Do Startups Create Jobs or Destroy Them?

need a job shirt Do Startups Create Jobs or Destroy Them?

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Google, conceived in 1998, employs just north of 30,000 people and generates $35 billion in annual revenue. Facebook, founded in 2004, has around 3,000 staffers and $4 billion in revenue. Twitter, founded in 2006, has between 200-300 people working for it.

Each of these companies has achieved a global scale and it might be argued that Twitter, during the recent Arab Spring, was the most important new service catalyzing major political change.

Anyone who caught Mayor Bloomberg during one of his recent speeches at tech events and ribbon-cuttings knows that he believes the tech sector is the key New York’s future success. But the very nature of startups–to seek out disruptive new efficiencies around which to build a business– presents a paradox in terms of job creation.

With persistent high unemployment weighing on their minds, Congress held a hearing yesterday focused on this issue. As GigaOm reports, “Brink Lindsey, a senior scholar in research and policy at the Ewing Marion Kauffman Foundation, told the House Subcommittee on Technology and Innovation that the number of startups, long a source of new jobs, have been declining since 2006, and when they are created they tend to generate fewer jobs.”

jobs per startup Do Startups Create Jobs or Destroy Them?

Jobs created per startup

Betabeat has heard time and again from veterans of the dot-com boom and bust that today’s breed of startups can build a viable business with a fraction of the employees required in the 1990s. Data from the Bureau of Labor Statistics bears this out. Startups tend to open with 4.9 employees these days, compared to 7.5 in the 90s.

The Kauffman foundation chronicled some of these trends in their recent report: Starting Smaller, Staying Smaller – America’s Slow Leak in Job Creation. So while startups continue to be the engine that drives new job growth, that growth has become smaller, more efficient and slower to expand. And for every job that a Google or Facebook or Twitter creates, many others may be lost in older industries that are being disrupted by these young upstarts.

Or as Matt Langer so eloquently put it on Twitter: “Q3 productivity up in equal measure to labor costs down? This recovery is going just swimmingly for the machines.”

James Surowiecki, writing in The New Yorker, highlights America’s long standing love affair with small business. But he also argues that, “Given that the overwhelming number of American businesses are small, and that, as we’ve all heard, small businesses create most new jobs, this seems reasonable enough. But the truth is that, from the perspective of the economy as a whole, small companies are not the real drivers of growth. One can see this by looking at the track record of the world’s economies. The developed countries with the highest percentage of workers employed by small businesses include Greece, Portugal, Spain, and Italy—that is, the four countries whose economic woes are wreaking such havoc on financial markets. Meanwhile, the countries with the lowest percentage of workers employed by small businesses are Germany, Sweden, Denmark, and the U.S.—some of the strongest economies in the world. This correlation is not a coincidence. It reflects a simple reality: small businesses are, on the whole, less productive than big businesses, and though they do create most jobs, they also destroy most jobs, since, while starting a business is easy, keeping it going is hard.