A recent paper offers evidence that companies with sustained growth are the key to job creation.
According to data on U.S. companies, most startups and small businesses are not major contributors to job growth. In fact, a very small number of companies that are consistently scaling up and growing are incredibly critical for reducing unemployment. The key findings of the report are summarized below.
Growth is concentrated among a remarkably small number of businesses. Growing companies, which account for 12 percent of all businesses, were responsible for 100 percent of net new job creation from 2005 to 2010. Firms with the top 1 percent of growth created close to three-fourths of that total.
1% of Firms Create 72% of New Jobs
Growth frequency drives growth amount. Companies that grow frequently accumulate more net growth over time. One year of significant growth is not a beneficial as multiple years of sustained growth. Since growth frequency can partially predict future performance, public policy should help firms learn to grow more often.
Sustained growth companies promote social equity. Consistently growing companies exist in all industries and nearly all U.S. counties, so a diverse range of workers can share the benefits of growth. In fact, minority- and women-owned businesses are more likely to have sustained growth than many other firms.
The author concludes that in order to “increase employment growth within a region, we must increase the number of companies with sustained growth. Because sustained growth appears to be tied to learning through repetition, we must find new ways to encourage firms to expand more frequently.” To read the full report from the Institute for Exceptional Growth Companies, please click here.
Contributed by Caroline Pringle.