St. Louis Federal Reserve Economist Reveals High Job Creation Rate Among Startups, But Low Survival Rate

According to Charles Gascon, an economist at the St. Louis Federal Reserve, startups may create many jobs but their lifespan is often short. While startups account for a large portion of the job creation from 2020 to 2021, the net job creation for these companies is relatively small and sometimes even negative due to the high likelihood of closure within five years.

Gascon emphasized that most people assume that tech companies make up a significant portion of startups, but in reality, they only represent a small segment. The majority of startups are actually restaurants, small businesses, and professional service firms such as 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.

In addition to startups, businesses that have been around for at least 11 years also contributed to the growing economy during the COVID-19 pandemic years. Although there was positive net job creation from these businesses, it did not show up in the same way because many large firms laid off workers due to the pandemic and then started ramping up again.

According to the Federal Reserve Bank of St. Louis, startups account for about 2% of total employment in the U.S economy. Despite this significant contribution to job creation, Gascon pointed out that the high likelihood of closure within five years and low pay contribute to small and sometimes negative net job creation among startups.

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