Job Gains Slow at Startups
According to data from the Bureau of Labor Statistics, recently opened business in the United States are contributing fewer jobs to the labor market than they have in previous decades.
The numbers suggest that although the information technology revolution has created new products and new wealth, it is not a labor-intensive renaissance. (Source: “Job Gains at Startups Are Way Down and That’s a Bad Sign,” November 9, 2016.)
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This much is clear from the fact that job gains as a percentage of private sector employment fell to one percent in the first three months of 2016. There has never been a lower level of startup employment relative to overall employment, at least not since the record-keeping was initiated in 1992.
Contrary to popular notions, the rate of startup formation has actually declined across recent decades. That much is clear from information provided by the Commerce Department, but it is counterintuitive because Silicon Valley firms have gained visibility over the same time period.
In the first three months of 2016, the number of startup originations decelerated by 26,000 to a level of 220,000. The number of jobs those startups created also dropped to a five-year low.
From the last quarter of 2015 to the first quarter of 2016, new startup jobs fell by 161,000 to 734,000. Analysts have not seen such weak numbers since 2011.
Some economists, including those at the White House Council of Economic Advisors, believe these decreases in startup formation signal less competition in the U.S. economy. Possible effects include higher profit margins for big firms, depressed wages, and wider inequality.
In a more abstract sense, fewer startups could mean less innovation in the economy, particularly because they are incentivized to disrupt existing paradigms. This forces them to challenge norms and old-fashioned ways of operating, avenues that older rivals have no compulsion to explore.
Without the leaps forward that startups provide, there may be a slowdown in economic productivity, which economists use as a proxy for innovation. Worse still, the slowdown in startup origination has been matched by a rise in mergers and acquisitions (M&A).
October 2016 hit a record pace for M&A activity, with nearly half a trillion dollars being spent on further consolidation in U.S. markets.
