News Column

Startups Help Pace of Job Recovery: Kauffman Report

Dec. 1, 2012

Diane Stafford, The Kansas City Star

startups spur, job creation

Dec. 01--Job creation rate: Good.

Worker churn rate: So-so.

Comparative wage rate: Not so hot.

A study released this week by the Ewing Marion Kauffman Foundation found that the job creation and hiring rate in firms less than 2 years old has outpaced that of more established firms since 2008.

"The percentage of hiring based on job creation is much greater at startups than at more mature firms," the foundation said. "Four out of every 10 hires at young firms are for newly created jobs, much higher than in older firms, where the ratio fluctuates between 0.25 and 0.33."

The "Job Creation, Worker Churning and Wages at Young Businesses" report also underscored a slowdown in the overall churn rate -- the pace of employee turnover -- in startups and older firms.

Employee retention is valued, but turnover also is an important measure of job market health and of the ability of workers to advance.

"A degeneration in churn rates may indicate that the U.S. economy is becoming less dynamic," said Dane Stangler, director of research and policy at the Kauffman Foundation, in a publicity release.

"If workers have fewer opportunities to change companies and job roles, as this research indicates, it will be harder for them to advance their careers and grow their earnings."

A third major finding in the report is that the wage gap between paychecks in startups and established firms is increasing.

New and small firms generally have lower pay scales than larger organizations, but "the firm age wage premium has risen over time," the foundation said, and "all real earnings growth in the last decade has occurred at established firms."

Just before the 2001 recession began, employees at young firms earned about 85 percent as much as employees in older firms, the report said. By 2011, it was 70 percent.

"Average real monthly earnings in small firms fell from a high of 78 percent in 2001 to a low of 66 percent in 2011," Kauffman said. Furthermore, "the trend is exacerbated by a decline in the share of the number of startups."

Kauffman researchers pulled data from the Census Bureau's Quarterly Workforce Indicators for the report.


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