High-Growth Firms and the Future of the American Economy

Abstract

Into early 2010, more than two years after the recession began, the American economy continues to send out mixed signals with respect to economic recovery: GDP growth looks set to recover, while unemployment is projected to remain high for many more years. The most important economic matter facing the country is job creation, not only in terms of employment itself but also for boosting sectors such as housing, which will not fully recover until job creation recovers.

Discussions about jump-starting the U.S. economy - both from policymakers and pundits - primarily focus on measures that would expand job growth in existing companies. This report, the third in the Kauffman Foundation Research Series on Firm Formation and Economic Growth, draws on a new set of data, a special tabulation conducted by the Census Bureau at the request of the Ewing Marion Kauffman Foundation, calculated from the Business Dynamics Statistics (BDS) database.

While previous research has emphasized the importance of new and young companies to job creation overall, this paper focuses on high-growth firms - the so-called “gazelles” that, despite their relatively small numbers, nonetheless account for a disproportionate share of job creation.

The data generally show that: -In any given year, the top-performing 1 percent of young firms generate roughly 40 percent of new job creation. -Fast-growing young firms, comprising less than 1 percent of all companies, generate roughly 10 percent of new jobs in any given year.

This paper examines the relevance of these points in the national discussion on job creation. When the current conversation turns to small business as an instigator in economic growth, it still emphasizes existing firms. But a new discussion - one that not only promotes entrepreneurship, but, specifically, high-growth entrepreneurship - is necessary, because top-performing companies are the most fruitful source of new jobs and offer the economy’s best hope for recovery.

Finally, this paper recommends strategies policymakers could follow to facilitate the creation and growth of more gazelle companies: -Remove barriers that potentially block the emergence of high-growth companies. -Focus on taxation, regulation, immigration, access to capital, and academic commercialization. -Target immigrant entrepreneurs and universities, which may be likely sources for high-growth firms.

Keywords: firm, growth, economic, high-growth, fast-growing, young firms, new jobs, gazelle, entrepreneurship