A study by the Kauffman Foundation in 2015 found that 1.5m new jobs are added to the US economy each year by new firms, while over an extended period existing firms have been net job destroyers, losing a total of 1m jobs per year (Figure 12). The report emphasises that it is not small businesses that are the primary engine of job creation, but rather young businesses.
These findings are not unique to the United States - data collected from the OECD mirrors the same pattern of young firms acting as net job creators.
OECD DynEmp data indicates that the contribution of young firms to job creation is much higher than their share in total employment (Figures 12 and 13). On average, firms five years old or younger account for only 17% of total employment, but are responsible for 47% of job creation (Figure 14).
On a country-by-country basis, the similarities are striking. There is a pronounced and universal pattern in net job creation from young firms.
The UK’s Centre for Economics and Business Research found one in every five new jobs in the UK and more than 20% of economic growth was created by high growth small businesses between 2015 and 2016. Representing less than 1% of UK business, these 22,074 companies created on average more than 3,000 new jobs each week.
Based on this and similar research in other countries, the UK government has increasingly taken an economic policy approach of focusing support on the relatively small number of companies with the highest growth potential, rather than broad support programs for new businesses and SMEs.
According to NESTA’s Chief Executive Jonathan Kestenbaum, ‘Backing excellence and innovation is not an elitist policy: rather, it is the best way of generating employment and opportunity.’