Based on a recent study from the Ewing Marion Kauffman Foundation, it’s by stimulating more startup businesses.
The study, High-Growth Firms and the Future of the American Economy, found that in any given year, the top-performing 1 percent of companies account for some 40 percent of jobs. Within that category, fast-growing “gazelle” companies (3 to 5 years old) make up less than 1 percent of all businesses, yet account for approximately 10 percent of net new jobs in any given year.
The “average” company in the top 1 percent generates an astounding 88 net new jobs annually, compared to the two to three net new jobs generated by the average firm in the economy as a whole.
Firm formation and economic growth
The study, authored by Dane Stangler, senior analyst with the Kauffman Foundation, is the third in the Kauffman Foundation Research Series on Firm Formation and Economic Growth. It used a special tabulation performed by the Census Bureau using the Business Dynamics Statistics (BDS) database.
“Because fast-growing young firms account for a disproportionate share of net job creation, policymakers who are worriedly poring over unemployment projections might instead seek to foster the creation of more high-growth firms,” said Robert E. Litan, vice president of Research and Policy at the Kauffman Foundation.
The report made three recommendations to create new jobs:
- Create more companies, because based on simple math, this will mean more high-growth companies and hence more job growth.
- Remove barriers, including difficulty accessing financing, excessive regulation and excessive taxation – that keep existing companies from becoming high-growth companies
- Focus on universities and immigrants, which have the potential to produce high-growth firms. To attract immigrants who plan to start businesses, the report recommends starting a new visa program or expanding the existing EB-5 visa program for immigrant investors. To assist universities, the report recommends encouraging innovation by removing barriers to commercialization of university research.
THE KAUFFMAN FOUNDATION WORKS TO FURTHER UNDERSTANDING OF THE POWERFUL ECONOMIC IMPACT OF ENTREPRENEURSHIP