A little over 100 days into a new presidential administration, one topic has remained front and center from the campaign trail to the White House press briefing room: job creation. As we approached the token benchmark in the presidency, voices on all sides disputed the issue: is our economy producing the number of new, good jobs that we want it to be? If the answer is no, then the question inevitably becomes, “Well, why not?”

In listening to the chorus of debate and discussion, it’s become pretty clear that many of us don’t actually have a full grasp on how job creation has historically occurred in our economy. But it’s critical that we do. As I’ve recently written, producing more, good jobs is the way to increase the income and financial security of people of color and low-income people at scale.

Anyone working toward that goal simply can’t afford to check out of this conversation. Here, I add my take, with answers to four fundamental questions about the mechanisms of job creation, and the work necessary to get those engines firing at full capacity again:

1. Where do jobs come from?

They don’t appear out of thin air, nor are they created through some mysterious process. On the contrary, there’s a wealth of longitudinal research that tells us exactly where the bulk of new jobs in this country have come from. Start-ups and young firms are the powerhouses. Data from the Kauffman Foundation has shown that, on average, companies less than one year old created 1.5 million jobs annually for the past three decades. That’s substantially more than older firms, which tend to be net job destroyers rather than creators.

This is often attributed to the “up or out” dynamic. Successful young firms often scale rapidly. Unsuccessful ones quickly fold, which frees up capital and resources for other ventures. Even throughout the aftermath of the financial crisis, young firms led the way in fueling net job growth.

2. Who’s starting these companies?

Wealth disparities and limited access to credit have historically stifled entrepreneurship amongst women and people of color. Unequal access to capital—whether from personal savings, support from family and friends, or venture capitalists—has been a roadblock for entrepreneurs of color in particular. The force of those barriers has been reflected in the numbers. Twenty years ago, white entrepreneurs were responsible for 77% of all start-ups.

But our country’s demography is changing, and with it, the makeup of our nation’s entrepreneurs. By 2014, the proportion of white-owned start-ups stood at just 59%. Rates of entrepreneurship amongst Latino, black and Asian Americans have climbed. And within the increasing cadre of female-owned start-ups, it’s women of color who are largely driving growth (to the tune of a 258% spike in over the past fifteen years). These trends are encouraging, but they don’t constitute a fix. We must continue to ensure that our fastest-growing populations are positioned to start up and grow ventures if we hope for a return to the rates of job creation we enjoyed in the past.

3. How many startups are being created?

Dynamism, the churn of firm creation and destruction that fuels our economy, is on the decline. In fact, fewer people are starting new companies today than at any other point in our history.

This chart from a recent report from the Economic Innovation Group, aptly called “Dynamism in Retreat,” illustrates the harrowing slope of this decline—including the precipitous drop in 2008 when business deaths outnumbered births for the first time in recent history. The slowdown has been both dramatic and diffuse; from coast to coast, no region was immune from the drop in firm creation.

Over the past few years, we’ve begun to turn the corner on the curve—but only just. We still face a steep climb to get back to the healthy rates of startup activity that we rely on to catalyze job creation.

4. What are “good” jobs?

When it comes to increasing income and economic wellbeing, all jobs aren’t created equal. When we talk about “good” jobs, the emphasis is on ensuring that job growth is occurring in industries that offer inroads for large swaths of Americans—not only those with advanced degrees or highly technical skills. At the same time, we’re talking about jobs that provide a stable, living wage.

The good news is that such “middle-skill” jobs—those that require education past high school but not a four-year degree—actually constitute the largest part of today’s labor market. Demand for these jobs is strong and continuing to grow. Unfortunately, due to a pervasive skills gap, many companies are already struggling to find workers equipped to fill those jobs. We can’t reap the benefits of strong growth in these industries—including information technology, healthcare, advanced manufacturing and more—if we’re not preparing more Americans with the competencies to fill those roles.

We built a job creation machine that served us well in the post-WWII era. Today, it’s a relic in desperate need of repair. Our history makes it clear where future job creation will come from: new firms. And we know that returning to the rates of job creation we need will require dismantling the barriers that keep diverse entrepreneurs from succeeding. Conversation is happening, but we’ll have to turn talk into informed action if we want to see results.

Published: May 17, 2017
Category: Blog
Contributors: Ben Hecht