Charles Gascon, an economist at the St. Louis Federal Reserve, recently stated that startups are responsible for a significant portion of job creation in the United States. Despite their contribution to employment growth, Gascon noted that many startups do not last long and often close down within five years.
Gascon pointed out that while many people assume that most startups are tech companies, this is not entirely accurate. In reality, tech startups make up only a small segment of the broader startup landscape. The composition of startups is diverse and mirrors the industry composition of the United States as a whole, with the exception of industries with high barriers to entry such as manufacturing or utilities production.
Startups account for about 2% of total employment in the U.S., according to the Federal Reserve Bank of St. Louis. While they create a significant number of jobs, the high likelihood of closure within five years and low pay contribute to small and sometimes negative net job creation.
In addition to startups, businesses that have been around for at least 11 years also played a crucial role in job creation during the COVID-19 pandemic years. Although there was positive net job creation from these firms, it did not show up in the same way due to large corporations laying off workers before ramping up again after lockdowns were lifted.