Young firms key to job creation

Jul. 07, 2015

David Robinson is Professor of Finance at Duke University, Fuqua School of Business. He is also member of the Scientific Advisory Board for the Swedish House of Finance and regularly visits Sweden. On April 28, 2015 he visited the Swedish Ministry of Finance and gave a much appreciated talk about his research on entrepreneurial finance.

– I have used US data to study the response by firms to economic shocks and have found that startups are an important key to job creation. This leads many policy makers to encourage small business activity, but this is misguided. Most small firms are old, even though all young firms start small. Small firms are not a primary source of new jobs, but young firms are. In fact, while only one sixth of all the jobs in the economy are found in young firms, as much as a third of new jobs created as a response to economic growth comes from young firms, says David Robinson.

For policy makers, this means that policies making it easier to start new firms might be more effective in creating new jobs than policies aimed towards the small business sector in general. Most small firms are old and during good times people will migrate away from old small firms towards new small firms or old big firms.

– My research has shown that a well-developed banking infrastructure with many local banks is beneficial for startups. In areas with a strong presence of local banks, startups generate more jobs than in areas with less developed banking systems, says David Robinson.