There’s a debate going on right now over how many jobs tech startups create. As Fortune reporter Dan Primack notes, the US lost over 1 million jobs over the past year. And a lot of people look to high-growth companies to make up the shortfall. VC Andrew Parker wrote that the big web 2.0 companies (the Facebooks and Twitters) have probably created 15,000 jobs; extrapolating with the long tail, he guesstimates that the last wave of VC-backed companies have probably created around 75,000 jobs.
Parker writes: “we need 18 times the job creation we’ve accomplished in this wave of web services investing to overcome the 1.29MM non-farm jobs lost in the US economy over the past two years.”
While that’s directionally correct, it still probably underestimates the job creation that comes from high growth startups, for two reasons:
- A lot of startups create jobs for their users, even if that’s not their employees. Typically marketplace startups: Etsy is a good example here (even if Etsy’s job creation can be overestimated). Airbnb is, or could be, another. A lot of people make money through affiliate fees, ad networks, blogging, etc. These are all jobs that don’t show up on companies’ payrolls, but are created because of them.
- 7,000 jobs in 2 years. Not bad!Economic value creation creates jobs. To compute the full job creation associated with startups, we would also have to compute the jobs created by the economic dividends associated with those startups. The first effect is a “trickle down” effect: employees of tech startups who get rich will refurbish their houses, hire babysitters, buy a new car, go to restaurants more often, etc. all of which contributes to job creation. More importantly is simply the fact that a lot of these services makes people and companies more productive. If a SaaS or open source solution provides the same service that used to take an expensive software licence for cheaper, that frees up resources to create jobs. If a coffee house gets a bunch of new customers thanks to Groupon and hires a new waiter, that’s a new job created thanks to Groupon, even though it won’t show up that way. If a taco truck boosts its revenues because it can now take credit cards thanks to Square and expands, same thing.
Those other kinds of job creation are much harder to estimate, but they’re also very real. If we want to think about how many jobs tech startups create, we also have to think about those.