Where do jobs come from

When I started my business in 2010 the US was still in the midst of the fallout from the 2008 financial crisis. The federal government’s stimulus plan (or as almost no one called it, “The American Recovery and Reinvestment Act”) was familiar to everyone, with its promise of four million jobs “created or saved.” I often joked that the creation of McClung Communications & Public Relations meant “one job created.”


Now enter Hillary Clinton. Last month the former First Lady, US Senator and Secretary of State said, “Don’t let anybody tell you that it’s corporations and businesses that create jobs. You know that old theory, trickle-down economics. That has been tried, that has failed. It has failed rather spectacularly.” (Of course, three days later she amended her comments).


So who does create jobs?


A recent study from the Kaufmann Foundation reveals something surprising: Over the last 25 years, almost all of the private sector jobs in the US have been created by businesses less than five years old. (Cheers to new businesses!)  


The authors of the study write: “New businesses account for nearly all net new job creation and almost 20 percent of gross job creation, whereas small businesses do not have a significant impact on job growth when age is accounted for.”


“Policymakers often think of small business as the employment engine of the economy. But when it comes to job-creating power, it is not the size of the business that matters as much as it is the age. New and young companies are the primary source of job creation in the American economy. Not only that, but these firms also contribute to economic dynamism by injecting competition into markets and spurring innovation.”


What does this tell us? Policymakers should focus more on creating a climate that helps entrepreneurial businesses start and succeed.


Our home state of Minnesota is particularly well positioned to take advantage of this. We’re proud of our 18 Fortune 500 companies — all of whom are homegrown. But we should be equally proud of our early stage entrepreneurs, like those competing in the annual Minnesota Cup competition. We should do more to support the state Angel Investment Tax Credit and consider ideas like an income tax exemption on a portion of pass-through income (as was proposed by the Governor’s 21st Century Tax Reform Commission).


Young businesses have an out-sized role in creating jobs — so let’s do what we can to support and grow more of them.