STUDY: Startups are amazing jobs generators, but the sector is lagging

Lost amid last week’s leadership spill was a Department of Industry and Science paper with some stunning numbers. It claims startups, which it defines as a firm less than two years old, with an average of 5.5 employees, are a powerhouse of job creation.

And not the “gig economy” jobs Uber and Airtasker claim to create.

What this chart shows that between 2006 to 2011, which included the Global Financial Crisis, Australian startups added 1.44 million full-time employees, when the economy as a whole added just 1.04 million. The discrepancy between those two numbers is explained by the fact that older companies (3years+) actually shed 400,000 full-time jobs during this period. All-in-all, despite larger and mature firms dominating in total employment, young SMEs (which includes startups) were responsible for 50% of job creation in the period.

And it seems Australia is not alone in this trend.

All these countries, with both established and emerging economies, are seeing a disproportionate amount of job creation come from “entrant” – or startup – companies. While some of these jobs are lost as startups understandably suffer a higher failure rate than incumbents, it’s not enough to wipe out the gain.

Yet the report pivots to a couple of warnings; Australian startups were on the wane over the study period to 2012 and established businesses reasserted their dominance in job creatin. These charts point this out:

Startups decline both in absolute numbers as well as relative to businesses as a whole. How many of these are just “ageing out” and not being replaced by newer entrants, or companies that fail before the two-year threshold is an unanswered question.

Between 2003 and 2009, again a period that includes the GFC, the failure rate of startups markedly increased.

One theory posed for the decline is the GFC and its aftermath. Another is a shrinking survival rate (startups lasting longer than two years), although the data drops out after 2009.

Whatever the cause of these woes for startups, one promising take out from the study is that when the sector is flourishing it’s an excellent jobs generator, which could certainly help as the new tech-focussed prime minister seeks to get the unemployment rate back under the 6% rate.

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