St. Louis Federal Reserve Economist Reveals High Number of Startup Jobs, Yet Low Survival Rate

According to Charles Gascon, an economist at the St. Louis Federal Reserve, startups have a tendency to create many jobs but often do not last. Despite accounting for the majority of jobs created from 2020 to 2021, the net job creation for startups is small and sometimes negative due to their high likelihood of closing down within five years, often due to low pay.

Gascon pointed out that many people assume most of these startups are tech companies, but in reality, they make up only a small segment. A large portion of startups are actually 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 only about 2% of total employment in the U.S economy overall. However, they create a significant number of jobs nonetheless. The high likelihood of closure within five years and low pay contribute to small net job creation that is sometimes negative.