Useful Stats: Job Creation by Firm Age, 2014-2018

For years, there have been arguments back and forth on which companies are the greatest job creators. The argument began with advocates for small businesses saying that small businesses were the engine of job creation. In recent years, others have argued that it’s not the size of the business that’s significant so much as the age of the business and that it’s young businesses that create most of the jobs.

Analysis by SSTI of Census Bureau’s Business Employment Dynamics (BDM) data finds a more nuanced picture when examining states’ shares of net job creation by firm age.

In the maps below, green indicates high net job creation, with darker shades indicating stronger levels. Yellow and orange indicate low and near-zero net job creation, with orange indicating lower rates than yellow. Red indicates zero job creation and job losses. Black dots indicate each state’s share of total nationwide job creation.

As seen in the chart above, the BDM segments firms into one of four age categories: one year or less, one to four years, five to nine years, and 10 years and more. Net job creation is calculated by taking the annual difference between total job creation and total job destruction. Summed over the five-year period from 2014 to 2018, SSTI calculate each segment’s share of net job creation per state.

Over this period, firms aged one year or less accounted for the vast majority of new jobs created in every state. The share of U.S. job creation by new firms was 98 percent. Job creation by new firms was most pronounced in the middle part of the country, the Northeast, and California. Several states break this mold and showed much lower shares of job creation by new firms within their own borders. The share of job creation by new firms was below 50 percent in Utah (39 percent), Oregon (39 percent), Nevada (43 percent), South Carolina (47 percent), Washington (47 percent), and Arizona (49 percent).

Firms aged one to four years typically displayed the lowest share of job creation in each state. The U.S. average in this category was just under 6 percent. The job losses for this age group seem most likely to be the result of firms closing before reaching their fifth year, but could also result from cases in which a brand new firm over-expanded and failed to recover by year five. In several states, the one to four years group resulted in net job losses. Specifically, Florida, Kentucky, Missouri, Nebraska, North Dakota, Oklahoma, and West Virginia experienced the most severe net job losses from firms aged one to four years. Some states experienced positive job growth in this age group and achieved double digit shares of job growth for firms aged one to four years. Specifically, Alaska (25 percent), Pennsylvania (17 percent), the District of Columbia (17 percent), Colorado (13 percent), and Vermont (13 percent) showed the most robust shares of net job growth in this age group.

Similarly, firms aged five to nine showed net job losses in 12 states over the same period. Typically, this segment accounted for the second greatest amount of job losses and the lowest amount of job creation in each state. The five states that experienced the greatest net losses as a proportion of their total net job creation were Alaska (-65 percent), Louisiana (-31 percent), North Dakota (-29 percent), and Wyoming (-20 percent). Of these states, Alaska, North Dakota and Wyoming, in addition to Vermont and West Virginia, were the only states that experienced total net job losses for this cohort. On average, this age group performed worse than firms aged one to four, primarily driven by more severe job losses.

Firms aged 10 years or more generally accounted for the greatest amount of job losses and the second greatest amount of job creation in each state. The states enjoying the greatest share of job creation by firms in this age group include Oregon (45 percent), Nevada (42 percent), Utah (41 percent), Georgia (40 percent), and Arizona (39 percent). Several states experienced net job losses by firms older than 10 years, the most pronounced of which were Alaska (-360 percent), Wyoming (-315 percent), West Virginia (-303 percent), North Dakota (-259 percent), and Louisiana (-140 percent).

Despite the several exceptions previously discussed, the general trend is that net job creation is highest in firms less than one-year-old, second highest in firms age 10 and up, and lowest in firms age five to nine. Furthermore, as shown in the chart below, nationwide job creation by firms aged less than one year, one-to-four years, and five-to-nine years have remained relatively steady while nearly all the volatility in job creation has come from firms older than 10 years. In 2015, firms aged 10 years or greater experienced growth in their share of net job creation. This reversed between 2015 and 2017 as this age group’s share of job creation was reduced to a point below that of firms aged one to four. This trend reversed once again in 2018, climbing back to its second place position behind firms aged less than one year.

2_Consolidated employment by firm age and base size (for website).xlsx