St. Louis Federal Reserve economist says business startups create many jobs, but they often don’t last

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A St. Louis Federal Reserve economist said business startups create many jobs, but they often don’t last. Charles Gascon said a majority of jobs created from 2020 to 2021 are from startups or brand new, companies.

With that said, Gascon said the net job creation for startups is small and, sometimes negative, because of the high likelihood that they close down within five years.  Pay is the main factor for the closures.

He said people assume that most of these startups are tech companies.

“But the reality is that tech startups are a really small segment of this,” said Gascon. “I mean a lot of startups are restaurants, small businesses, people going out on their own opening a professional service firm like a law firm or an accounting firm.”

Gascon said the startup composition mirrors the broader industry composition of the United States.

“Wherever there’s exceptions are those industries where there’s very high barriers to entry like manufacturing or utilities production where it’s not really easy to get started in those without a big capital infusion,” he said.

Not only did startups contribute to the growing economy during the COVID-19 pandemic years, so, too did businesses that have been around for at least 11 years.

“So there was a big positive net job creation from that,” Gascon said. “It doesn’t show up as a share the same way because, at the same time as those firms were starting up, we also had a lot of large firms that had laid off workers due to the pandemic and then started ramping up.”

The Federal Reserve Bank of St. Louis said that startups account for about 2% the total employment in the U.S. economy.

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