6 ms·

Job creation: Where are the startups?

31 points by roedog 14y ago

ryanhuff 14y ago
So it takes less people than ever to start a company, and that's supposed to be a bad thing? They could have easily framed it as "its cheaper than ever to operate a start-up". A more interesting angle would be to compare the total number of people employed in start-ups over the years, as a percentage of the labor force.
ig1 14y ago
Note that this article uses the term startup for any small company under one year old. Also the underlying paper is pretty weak. The first thing the institute should have done is look at the breakdown of new companies by industry/location and see how that's change. Without doing that the claims blaming "outsourcing" and "occupational licensing" are pretty unscientific.
- shrikant 14y ago
  Yeah, the underlying paper is by the Hudson Institute, which is a right-wing think tank. Any place with a political axe to grind will bend facts to suit their hypothesis. In any case, Felix Salmon makes this statement which struck me as odd: > Intuitively, if people can’t find work for an existing company, they should be more likely, not less likely, to go out and found a new company themselves, instead. Why is this intuitive..?
  - kevinpet 14y ago
    It's intuitive if you assume that people are homogeneous and it is only circumstance that affects their behavior. I suspect that people who found companies that ever actually hire a significant number of employees are unlikely to have a hard time finding work.
  - smacktoward 14y ago
    My guess is that he means "intuitive" in the sense that if you can't find a job that already exists, your only alternatives are either creating a new one for yourself or being out of work (and suffering economic deprivation) indefinitely. In reality, though, this is not as intuitive a leap for people to make as he thinks. If there's no jobs available at existing companies today, that doesn't mean that there won't be some tomorrow; and starting a new business involves navigating a big thicket of complicated issues most people have no experience dealing with, like forms of legal organization, raising capital, state and local regulatory compliance, taxes and accounting, insurance, etc. Social factors are also important: if everyone around you makes a living as an employee, the idea that you can start your own business might never even really occur to you, because you have no role models for that kind of behavior. If you go ahead and do it anyway, you risk looking like the odd man out in your social group -- constantly having to explain your decision to people who don't really get it. And of course there's the non-trivial risk of failure, which potentially exposes you to scorn ("I told you opening that shop was a dumb idea, but you wouldn't listen," says your mother-in-law). Given the choice between checking the job listings again tomorrow and taking on a radical change in lifestyle that requires learning a whole bunch of new skills, it's understandable that just sticking to the job listings as long as they can is the more appealing choice for lots of people.
jaggederest 14y ago
You can't start small companies without personal wealth or available credit.
tptacek 14y ago
Very important graf at the end: The only thing I can think of here is that for all that we think of startups as being largely high-tech things, in reality a huge number of them are in the construction industry, in one way or another. In a word, subcontractors. And no one’s starting new granite-countertop installation companies right now. But still, startups are a decent proxy for the dynamism of an economy. And these charts don’t bode at all well, on that front.
- ChuckMcM 14y ago
  Was going to say the same thing. The Small Business Administration (SBA)tracks a number of these 'new small businesses' which are job creation engines. Construction companies and restaurants generally lead the pack in their stats. Others have pointed out a large correlation between these companies forming and the availability of credit. Generally there is some level of capital cost to start and without functioning credit markets those businesses don't start.
  - deleted 14y ago
    [deleted]
InclinedPlane 14y ago
So we are to believe that startups are not magically shielded from the massive worldwide economic downturn in progress right now? Why is this news?
analyst74 14y ago
The notion of "creating job" is absurd. Think about it, you are creating work that someone has to do so they can get paid. If that's the goal, why don't we just pay people without having to go through the hassle of creating job? Heck, we have so much machinery and automation that feeding the population is no longer a problem, shelter might be slightly trickier, but in a simplistic view, if it takes 1% of the population to create the basic essentials(food,shelter) for everyone, why can't we just give those to citizens and let them do things they may actually enjoy?
- mansoor-s 14y ago
  You should get out of your nice comfortable middle/upper class house in a first world country and go see the world.
  - slurgfest 14y ago
    Which part, Sweden or Bangladesh?
- doktrin 14y ago
  I down voted you by accident. This is actually a paradigm I think we will be forced to explore in the coming decades. With increasing automation, it seems logical to conclude that the sum total of available commercially viable jobs will decrease with time. Not necessarily in a purely linear fashion, as new industries will emerge, but the overall trend may point downwards. Ultimately, we may have to consider alternate ways of structuring a society. If this does come to pass, it will be a very uncomfortable transition.
  - benmathes 14y ago
    I can imagine a lens where the Occupy protesters are a warning shot, specifically the "we are the 99%" mantra.
  - brc 14y ago
    > it seems logical to conclude that the sum total of available commercially viable jobs will decrease with time. It might seem logical, but it isn't true. The Luddites were people who were frightened of the introduction of machinery, and used to go around attacking factories, thinking there would be no more jobs. In reality, whenever automation provides benefits through lower prices, what this does is reduce the amount of hours labor a person needs to spend in order to fulfill that need. If you have a cow, it will take a person a couple of hours to obtain a gallon of milk, and then you have to house, feed and look after the cow. Instead, with automated and factory-produced milk, the average person spends a fraction of that time - maybe 10 minutes - to earn the money to purchase that milk at a convenient location. And so it goes with everything - whenever a product is automated and the jobs (hours) required to produce that thing is reduced, then the cost of the product falls. The consumer then has a surplus of cash, which is really just a surplus of their time spent, to either keep for themselves, or spend on something else. As human needs and wants are essentially unlimited (most of us want to go to the moon if it was possible) then, for each good that falls in price, demand will shift to other goods. As automation lowers the cost of each additional good, a person is able to consume more of that good or more additional goods. Now, you might say that 'consumption' is bad - but consuming a good might also mean consuming a service, like a movie, a local band, or an art gallery, which is still consumption, but not in the 'using up resources' manner (although nearly every consumption save for walking to a tai-chi class on the local beach uses up some kind of resources) This curve of increasing standard of living is intrinsically linked to increases in productivity, which roughly means the amount of goods + services produced for the given input of working hours. Thus increasing amounts of automation will never, ever reduce the supply of jobs, because each automated thing that frees up human time for something else, in itself creates activity which generally means creating more jobs. You don't get an iPhone 5 to buy unless farmers can milk a herd of 150 cows singlehandedly. And so we'll never have tourist trips to the moon unless there is increasing automation amongst industries that are currently labour-intensive. This has been going on for a millenia, and there is no tipping-point or transition point, as it is a very smooth curve. Yes, it can be disruptive for small pockets of workers who become no longer required - there are no more pools of typists - but at the macro level the transition is relatively smooth.
ascendant 14y ago
As someone who occasionally has business ideas, I've spent the past few years passing on ideas because I really don't feel like having patent trolls bleed me dry, both big and small. There's no incentive in my mind to try and fight these huge entrenched dynasties because they will just bleed you dry in the courts the second you show any promise.
dreamdu5t 14y ago
The notion of "creating jobs" is dangerously ignorant. Jobs are a means to an end. They aren't a problem to solve, but what you do to solve a problem.
kimmiller 14y ago
I would have thought this outcome logical and heartening - yet journos have a history of baby/bath-water syndrome. If GDP is increasing (just, tick), large corporations are steady (fair assumption) then productivity increases are due to SMEs increasing productivity (ie. capital/labour ratio). This assumed equation is qualified in commentary around VC fund size and investments - "it's the easiest and cheapest it has ever been to start a company." This doesn't mean more start-ups, but if it were less, means less full-time equivalents for young companies. Think SAAS, lean and cloud computing. This along with a new attitude to risk amongst investors post-GFC (no large bets), means this data makes sense yet they've got the story completely backwards.

31 points by roedog 14y ago

So it takes less people than ever to start a company, and that's supposed to be a bad thing? They could have easily framed it as "its cheaper than ever to operate a start-up". A more interesting angle would be to compare the total number of people employed in start-ups over the years, as a percentage of the labor force.

ig1 14y ago

Note that this article uses the term startup for any small company under one year old. Also the underlying paper is pretty weak. The first thing the institute should have done is look at the breakdown of new companies by industry/location and see how that's change. Without doing that the claims blaming "outsourcing" and "occupational licensing" are pretty unscientific.

shrikant 14y ago
Yeah, the underlying paper is by the Hudson Institute, which is a right-wing think tank. Any place with a political axe to grind will bend facts to suit their hypothesis. In any case, Felix Salmon makes this statement which struck me as odd: > Intuitively, if people can’t find work for an existing company, they should be more likely, not less likely, to go out and found a new company themselves, instead. Why is this intuitive..?
- kevinpet 14y ago
  It's intuitive if you assume that people are homogeneous and it is only circumstance that affects their behavior. I suspect that people who found companies that ever actually hire a significant number of employees are unlikely to have a hard time finding work.
- smacktoward 14y ago
  My guess is that he means "intuitive" in the sense that if you can't find a job that already exists, your only alternatives are either creating a new one for yourself or being out of work (and suffering economic deprivation) indefinitely. In reality, though, this is not as intuitive a leap for people to make as he thinks. If there's no jobs available at existing companies today, that doesn't mean that there won't be some tomorrow; and starting a new business involves navigating a big thicket of complicated issues most people have no experience dealing with, like forms of legal organization, raising capital, state and local regulatory compliance, taxes and accounting, insurance, etc. Social factors are also important: if everyone around you makes a living as an employee, the idea that you can start your own business might never even really occur to you, because you have no role models for that kind of behavior. If you go ahead and do it anyway, you risk looking like the odd man out in your social group -- constantly having to explain your decision to people who don't really get it. And of course there's the non-trivial risk of failure, which potentially exposes you to scorn ("I told you opening that shop was a dumb idea, but you wouldn't listen," says your mother-in-law). Given the choice between checking the job listings again tomorrow and taking on a radical change in lifestyle that requires learning a whole bunch of new skills, it's understandable that just sticking to the job listings as long as they can is the more appealing choice for lots of people.

jaggederest 14y ago

You can't start small companies without personal wealth or available credit.

tptacek 14y ago

Very important graf at the end: The only thing I can think of here is that for all that we think of startups as being largely high-tech things, in reality a huge number of them are in the construction industry, in one way or another. In a word, subcontractors. And no one’s starting new granite-countertop installation companies right now. But still, startups are a decent proxy for the dynamism of an economy. And these charts don’t bode at all well, on that front.

ChuckMcM 14y ago
Was going to say the same thing. The Small Business Administration (SBA)tracks a number of these 'new small businesses' which are job creation engines. Construction companies and restaurants generally lead the pack in their stats. Others have pointed out a large correlation between these companies forming and the availability of credit. Generally there is some level of capital cost to start and without functioning credit markets those businesses don't start.
- deleted 14y ago
  [deleted]

InclinedPlane 14y ago

So we are to believe that startups are not magically shielded from the massive worldwide economic downturn in progress right now? Why is this news?

analyst74 14y ago

The notion of "creating job" is absurd. Think about it, you are creating work that someone has to do so they can get paid. If that's the goal, why don't we just pay people without having to go through the hassle of creating job? Heck, we have so much machinery and automation that feeding the population is no longer a problem, shelter might be slightly trickier, but in a simplistic view, if it takes 1% of the population to create the basic essentials(food,shelter) for everyone, why can't we just give those to citizens and let them do things they may actually enjoy?

mansoor-s 14y ago
You should get out of your nice comfortable middle/upper class house in a first world country and go see the world.
- slurgfest 14y ago
  Which part, Sweden or Bangladesh?
doktrin 14y ago
I down voted you by accident. This is actually a paradigm I think we will be forced to explore in the coming decades. With increasing automation, it seems logical to conclude that the sum total of available commercially viable jobs will decrease with time. Not necessarily in a purely linear fashion, as new industries will emerge, but the overall trend may point downwards. Ultimately, we may have to consider alternate ways of structuring a society. If this does come to pass, it will be a very uncomfortable transition.
- benmathes 14y ago
  I can imagine a lens where the Occupy protesters are a warning shot, specifically the "we are the 99%" mantra.
- brc 14y ago
  > it seems logical to conclude that the sum total of available commercially viable jobs will decrease with time. It might seem logical, but it isn't true. The Luddites were people who were frightened of the introduction of machinery, and used to go around attacking factories, thinking there would be no more jobs. In reality, whenever automation provides benefits through lower prices, what this does is reduce the amount of hours labor a person needs to spend in order to fulfill that need. If you have a cow, it will take a person a couple of hours to obtain a gallon of milk, and then you have to house, feed and look after the cow. Instead, with automated and factory-produced milk, the average person spends a fraction of that time - maybe 10 minutes - to earn the money to purchase that milk at a convenient location. And so it goes with everything - whenever a product is automated and the jobs (hours) required to produce that thing is reduced, then the cost of the product falls. The consumer then has a surplus of cash, which is really just a surplus of their time spent, to either keep for themselves, or spend on something else. As human needs and wants are essentially unlimited (most of us want to go to the moon if it was possible) then, for each good that falls in price, demand will shift to other goods. As automation lowers the cost of each additional good, a person is able to consume more of that good or more additional goods. Now, you might say that 'consumption' is bad - but consuming a good might also mean consuming a service, like a movie, a local band, or an art gallery, which is still consumption, but not in the 'using up resources' manner (although nearly every consumption save for walking to a tai-chi class on the local beach uses up some kind of resources) This curve of increasing standard of living is intrinsically linked to increases in productivity, which roughly means the amount of goods + services produced for the given input of working hours. Thus increasing amounts of automation will never, ever reduce the supply of jobs, because each automated thing that frees up human time for something else, in itself creates activity which generally means creating more jobs. You don't get an iPhone 5 to buy unless farmers can milk a herd of 150 cows singlehandedly. And so we'll never have tourist trips to the moon unless there is increasing automation amongst industries that are currently labour-intensive. This has been going on for a millenia, and there is no tipping-point or transition point, as it is a very smooth curve. Yes, it can be disruptive for small pockets of workers who become no longer required - there are no more pools of typists - but at the macro level the transition is relatively smooth.

ascendant 14y ago

As someone who occasionally has business ideas, I've spent the past few years passing on ideas because I really don't feel like having patent trolls bleed me dry, both big and small. There's no incentive in my mind to try and fight these huge entrenched dynasties because they will just bleed you dry in the courts the second you show any promise.

dreamdu5t 14y ago

The notion of "creating jobs" is dangerously ignorant. Jobs are a means to an end. They aren't a problem to solve, but what you do to solve a problem.

kimmiller 14y ago

I would have thought this outcome logical and heartening - yet journos have a history of baby/bath-water syndrome. If GDP is increasing (just, tick), large corporations are steady (fair assumption) then productivity increases are due to SMEs increasing productivity (ie. capital/labour ratio). This assumed equation is qualified in commentary around VC fund size and investments - "it's the easiest and cheapest it has ever been to start a company." This doesn't mean more start-ups, but if it were less, means less full-time equivalents for young companies. Think SAAS, lean and cloud computing. This along with a new attitude to risk amongst investors post-GFC (no large bets), means this data makes sense yet they've got the story completely backwards.