YOUNG FIRMS ARE THE JOBS ENGINE OF AUSTRALIA

Data from the Australian Department of Industry shows that new firms create substantially more net new jobs than established ones, with firms of up to three years old creating 1.44m jobs over the six years to 2011 compared with a net loss of 400,000 jobs by established firms over the same period (Figure 15). The report notes that ‘the bulk of this employment growth is driven by a relatively small number of high-growth- orientated startups’.

The Office of the Chief Economist’s 2015 Innovation System Report noted, ‘while innovative entrepreneurship can disrupt competitive markets, it also has the potential to nurture business dynamism and economic growth. Like many OECD countries, Australia is in the midst of an economic transition. Australia’s situation is different in that it is not so much seeking recovery from a downturn as searching for new sources of growth to balance the relative decline in resources sector investment. The role of the entrepreneur is central to this process.’

In its 2017 Innovation System report, the Department of Industry, Innovation and Science noted that high growth firms made a ‘disproportionate economic contribution’ in terms of both employment growth and turnover.

At the same time, genuine concerns exist about technology- driven employment dislocation. Research from the University of Oxford which is often cited in support of such concerns suggests software and automation could replace close to half of all low knowledge-intensity jobs over the next 20 years. But more recent research based in Australia suggests that automation is likely to impact tasks, rather than whole jobs, in the near future - in particular, manual or routine tasks. The same research also notes the economic opportunity from automation could be as great as $2.2 trillion.

FIGURE 15: YOUNG FIRMS CONTRIBUTE DISPROPORTIONATELY TO JOB CREATION IN ALL COUNTRIES
crossroads 2019 WEB Charts Figure 15

GROWTH CAPITAL AS A JOB CREATOR

While it may be less visible than a new factory or manufacturing plant, funding for tech startups is a large-scale job creation driver. In September 2019 John Henderson, a partner at AirTree Ventures, tallied the employment generation of Airtree’s startup portfolio. The 48 companies Airtree had invested in had created almost 4,000 jobs over the last five years. When expanding the research to the startups invested in by the top 10 Australian venture capital funds, that number increased to 12,500 created jobs over five years.

Startups are created in many different industries, and can have vastly different human capital requirements. Yet analysing the relationship between job creation and investment shows a remarkable consistency in the relationship between funds raised and total employees of the business. 

StartupAUS analysis suggests that in median terms Australian startups create a new job for every US$300,000 of investment (Figure 16). When applied to the sector as a whole, which raised roughly US$1.4 billion in 2018, we estimate over 4,500 jobs were directly created by venture-backed startups in that year alone, without including the indirect employment created by the economic activity.

This data underscores the powerful link between risk capital, high-growth businesses, and the rapid creation of new jobs.

FIGURE 16: RAISING INVESTMENT LEADS TO JOB CREATION
crossroads 2019 WEB Charts Figure 16

This graph plots Australian scale-ups by total funds raised and total employee number on LinkedIn. Each dot is an existing Australian business.