New research from Kauffman Foundation finds new businesses account for a greater share of new job creation than firms over five years old. An estimated 20% of all new jobs come from new firms. An estimated 1.5 million jobs over the past three decades have been created by companies less than one years old.
While old firms shed jobs during the period 2006-2009, new and smaller firms (less than 5 years old and fewer than 20 employees) grew jobs (8.6% net employment growth). Forbes also notes the positive role these companies play in adding to innovation and competition.
So it makes sense to encourage these types of firms to grow through monetary and fiscal policy.
Yet, as Forbes notes, Fed policy (QE and low interest rates) has made money accessible mainly to larger and more established firms, the very firms that are destroying jobs.
What is worse, these larger firms are not investing the money. Forbes questions why net investment by companies is at 4% of output when pre-tax corporate profits are at record highs (12% of GDP).
We know very well what large companies are doing with their money: sitting on it or using it to buyback stocks.
“From 2004 to 2013, 454 companies in the S&P 500 Index expended 51 percent of their profits, or $3.4 trillion, on repurchases, on top of 35 percent of profits on dividends… More than three-quarters of compensation for the 500 highest-paid executives came from stock options and stock awards.”
“Addicted to snorting corporate cocaine,” is what the Economist has described Blue Chip corporations as doing when it comes to buybacks.
Growing populist and anti-establishment movements in politics have a legitimate bone to pick when it comes to public policy favoring job destroyers. Let’s make sure new companies, who research has vindicated as job creators, have the capital they need to expand and grow.