News Column

Fewer Young Firms Means Less Dynamism

October 1, 2013

Isaac Cohen -- HispanicBusiness.com

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In every economy there is at the same time creation and destruction of jobs. During recessions, there is more job destruction than job creation, while more jobs are created than destroyed during expansions.

The speed of reallocation between job destruction and job creation is known as economic dynamism.

From this perspective, the U.S. economy has lost dynamism during the past two decades. This can be illustrated by the meager rate of job creation and consequent slow reduction in unemployment, particularly after both the 2001 and the Great Recession of 2008-2009.

Four years after the last recession, for instance, unemployment has decreased from 10 percent, but it remains elevated at 7.3 percent as a consequence of the modest average rate of economic growth of 2.2 percent.

A recent conference, at the Federal Reserve Bank of Atlanta, examined the loss of dynamism in the U.S. economy and tried to identify some of its causes. One of the most important factors identified was a decline in the share of economic activity by young firms, which are the most active in the destruction and creation of jobs.

The president of the Atlanta Fed, Dennis Lockhart, in a recent speech, recognized that "there has been very little growth in the number of businesses being launched since the end of the (last) recession, and those that are starting are creating fewer new jobs on average."

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Isaac Cohen is an international analyst and consultant, a commentator on economic and financial issues for CNN en Espaņol TV and radio, and a former director, UNECLAC Washington Office.


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