Charles Gascon, an economist at the St. Louis Federal Reserve, shed light on the role of startups in job creation during the COVID-19 pandemic years. While startups created a majority of the jobs from 2020 to 2021, their net job creation is small and often negative due to their high likelihood of closure within five years, often due to low pay.
Gascon emphasized that many people assume most of these startups are tech companies, but in reality, they come from a wide range of industries such as restaurants, small businesses, and professional service firms like law or accounting firms. The composition of startups mirrors the broader industry composition of the United States, with exceptions in industries with high barriers to entry like manufacturing or utilities production.
Startups account for about 2% of total employment in the U.S., according to the Federal Reserve Bank of St. Louis. However, it’s important to note that businesses that have been around for at least 11 years also contributed significantly to economic growth during the pandemic years. While there was positive net job creation from these businesses, it did not show up in the same way as startups because many large firms laid off workers due to the pandemic and then started ramping up again.
Overall, while startups play a significant role in job creation in the U.S., their net job creation is often small and negative due to factors such as high turnover rates and low pay.