By Erik Neilson  Updated on Fri Mar 14, 2014

Are New Businesses Creating Enough Jobs?

Are New Businesses Creating Enough Jobs?

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For a long period of time, new businesses have been responsible for creating a wealth of jobs and pushing the U.S. economy forward. Perhaps as a result of necessity, new businesses are typically known for hiring a great number of individuals, while at the same time, older firms are often considered “job killers” because of layoffs and downsizing efforts. New businesses in all industries, including technology, education and healthcare, are considered to be job creators. While new businesses are still creating more jobs than older firms, new information has come to light showing that they’re not hiring the way they used to, despite what many are considering an improving economy.

A Slowdown on the Hiring Front

In the mid 1990s, hiring among new businesses was booming. Many were quick to relate this to the rapid expansion of the technology sector, and they wouldn’t be far off the mark in saying so. The bottom line is that Americans looked to new businesses as being potential saviors of the job market, especially given the fact that older firms were hiring far less frequently during this period of time. The boom only lasted for a few years, however. Some might believe that the hiring slowdown is something new, but it can actually be traced back to 1999, which had the most new hires by new businesses in the past decade and a half. At the beginning of the new millennium, numbers regarding new hires began to drop, falling to a low of just under 2.5 million in 2010. While new hires have been steadily (albeit slowly) increasing since the end of the recession, they’re still nowhere near where they were two decades ago. It’s difficult to tell why this has been happening, as there are very few signposts that paint a clear picture as to why the current number of new hires is so low.

Not an Issue with New Business Creation

In determining why the lack of new hires is such a problem, it’d be easy to point blame at new business creation. The fact is, however, new businesses are popping up left and right, and business creation has been quite steady over the course of the past 20 or so years. One thing that’s important to take into consideration, is that many new businesses seem to be hiring fewer employees than in the past. In the 1990s, for example, it wasn’t uncommon for new firms to hire seven, eight or even more employees right off the bat to ensure a smooth start. Today, however, new businesses are looking more toward efficiency, typically hiring five employees or less. Rather than focusing on adequate labor, new firms are putting more emphasis on capital, perhaps stretching their workloads a bit too far in exchange for having to spend less on annual salaries. While determining a clear reason why this is happening is easier said than done, it’s fair to assume that the lasting effects of the recession have created anxiety among business owners regarding capital expenditures, which, in turn, has put somewhat of a lock on hiring.

Some Optimistic News

No one wants to hear that new businesses aren’t hiring the way they used to, but not all hope is lost. In fact, there are reasons to believe that today’s job market is actually more secure than it has been in years. The fear of layoffs is beginning to dwindle, as established firms are downsizing less and less as time goes on, most likely the result of increased consumer confidence. While this may be good news for those who are already employed, it also means that the idea of job growth has in some ways been replaced with the notion of keeping the job one already has. As with anything else in the business world, the question of whether or not new businesses will be creating enough jobs in the future is up in the air. If recent trends are any indication, however, focusing solely on “job growth” as an economic indicator may be a thing of the past.

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