Young High-Tech Firms Outpace Private Sector Job Creation

Week 2 Kauffman Foundation 001

Week 2 Kauffman Foundation 001 (Photo credit: theglobal13)

High-tech startups are a key driver of job creation throughout the United States, according to research released today by technology policy coalition Engine and the Ewing Marion Kauffman Foundation. Though they start lean, new high-tech companies grow rapidly in the early years, adding thousands of jobs along the way. In fact, high-tech startup job creation is so robust that it more than makes up for the job destruction from early-stage businesses failures – a key distinction from the private sector as a whole where job losses from early-stage failures turns this group into net job destroyers.

Previous Kauffman research has shown that new and young firms are responsible for net job creation, not small businesses in general. This report contrasts business and job creation dynamics in the entire U.S. private sector with the innovative high-tech sector – defined here as the group of industries with very high shares of employees in the STEM fields of science, technology, engineering and math. These differences are highlighted at the national level, as well as detailing regions throughout the country where high-tech startups are being formed each year.

“Not all entrepreneurs are the same. In fact, the majority don’t even set out to innovate or grow their businesses, and many more never do,” said Ian Hathaway, an economic advisor to Engine and author of the report. “By comparing the high-tech sector with other firms across the economy, we see the job-creating power that growth-oriented technology startups harness, compared with other young businesses. Observing these trends, it is clear that encouraging the creation of new tech businesses can boost our economy.”

High-tech firm births were 69 percent higher in 2011 than in 1980, and drilling down within high-tech to isolate just the ICT sector (Information and Communications Technology), new firm births grew by 210 percent. At the same time, private-sector business creation was down 9 percent.

The report also finds that high-tech startups are springing up at a higher rate than all private-sector businesses. Relative to their share of firms in the economy, high tech is 23 percent more likely, and ICT as a segment of high tech is 48 percent more likely, than the private sector as a whole to witness a new business formation.

“This report confirms the dynamism of the technology sector and its disproportionate contributions to the U.S. economy. It also underscores the need for policies that enable and support that dynamism,” said Dane Stangler, director of Research and Policy at the Kauffman Foundation.

What’s more, these high-tech startups are becoming increasingly geographically diverse, while the opposite is true for new businesses across the economy generally.

Top 10 Metro Areas for High-Tech Startup Density:
1. Boulder, Colo.
2. Fort Collins-Loveland, Colo.
3. San Jose-Sunnyvale-Santa Clara, Calif.
4. Cambridge-Newton-Framingham, Mass.
5. Seattle, Wash.
6. Denver, Colo.
7. San Francisco, Calif.
8. Washington-Arlington-Alexandria, DC-Va.-Md.
9. Colorado Springs, Colo.
10. Cheyenne, Wyo.

“In the case of Boulder, a startup community whose evolution I’ve observed and participated in closely over the past many years, the cultural and economic transformation has been extraordinary,” said Brad Feld, co-founder of Boulder, Colo.’s Foundry Group and author of numerous books about creating startups and startup communities. “While there isn’t one, definitive blueprint to building a technology industry, this research can hopefully inspire communities and policymakers to work together to ensure that the spread of high-tech entrepreneurship isn’t just a trend, but a long-term phenomenon.”

The full report is available at http://www.kauffman.org/bdstech .

The report used data from the Business Dynamics Statistics (BDS) series, which is compiled by the U.S. Census Bureau and tracks the annual number of new businesses (startups and new locations) from 1976 to 2011. More information about the BDS can be found at http://www.census.gov/ces/dataproducts/bds/overview.html . The BDS represents the gold standard of business creation data. In contrast to other indicators that lump employer firms (those coming into existence with employees) together with non-employers and self-employment, the BDS tracks only employer companies. It also allows researchers to separate firms (unique businesses) from establishments (multiple locations of single firms, such as a new Starbucks location) and make important advances in data collection and policymaking.

 

From: Kauffman Foundation

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