Charles Gascon, a St. Louis Federal Reserve economist, stated that startups may not last despite creating many jobs. He revealed that most of the jobs created from 2020 to 2021 were from new companies or startups, but the net job creation for these startups is small and can sometimes be negative due to their high likelihood of closing down within five years, often due to low pay.
Gascon noted that people often assume that most startups are tech companies, but in reality, a significant portion of them are 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 such as 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. While 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.
According to the Federal Reserve Bank of St. Louis, startups account for about 2% of total employment in the U.S economy. Despite this, Gascon emphasized that while startups create significant numbers of jobs, their high likelihood of closure within five years and low pay contribute to small and sometimes negative net job creation.