What is the role of start-ups in job creation? Does total employment increase when more people decide to start their own business? Since many countries attempt to promote entrepreneurship as a way of creating new jobs, these are important policy questions. The Swiss Start-up Monitor takes a closer look at this issue in the context of Switzerland.
Recent research highlights the importance of new and young businesses in job creation. While older and larger firms employ the majority of people in the workforce, new and young businesses are the primary sources of net new jobs (Hathaway, 2013). According to the Federal Statistical Office (FSO), around 12000 new firms have been created on average each year between 2011 and 2013 in Switzerland. The gross number of jobs created annually by those businesses averages to around 1.8 per firm. However, not all of the new and young businesses are the same. A vast majority of newly founded firms do not have scalable business models (Blank, 2010; Hathaway, 2013). Differentiating between start-ups with scalable business models and „other“ young businesses is an important distinction which publicly available data has neglected so far.
The Swiss Start-up Monitor panel database aims to fill this gap. Although this database currently covers only a small fraction of the Swiss start-up population, the findings deliver a reliable reflection of the start-up landscape in Switzerland. According to the Start-up Monitor database, Swiss start-ups create 3.8 jobs on average in their first year, which is almost twice the calculated gross job creation rate listed in the Federal Statistical Office database. This finding is in line with the results of the Kauffman foundation report, which suggests that start-ups tend to outpace the other new businesses in job creation.
By definition, start-ups and other new firms can only add jobs in their first year. Thus, the net job creation rate is fixed at around 100 percent. Beyond this direct effect of job creation, research has shown that there is a complex S-shaped effect that appears over time. Fritsch (2008) states: “(…) employment in entry cohorts tends to be stagnant or decline from the second or the third year onward”. As start-ups usually begin small in size, they tend to grow especially rapidly in the early years. In fact, they can grow so rapidly that sometimes job creation is robust enough to outshine the job destruction from the early-stage start-up failures. In contrast, non-start-up firms typically do not experience such a high growth rate (Hathaway, 2013). However, according to Fritsch, the impact of the formation of a new business on employment has finally faded away about ten years after the opening of a firm. This type of wave pattern has been found to occur in the US and in a number of European countries, as well as in a few OECD countries.
To summarize: While it is too soon to generalize the impact of Swiss start-ups on job creation based on the currently available data, there is no doubt that innovative growth-oriented start-ups introduce a dynamic element into the Swiss economy and have the potential to contribute to job creation.
In order to find a general and valid answer to the above-mentioned questions, two fundamental aspects must be taken into consideration. First, not all new and young firms can be categorized as start-ups. As Prof. Dr. Dietmar Grichnik, president of the Swiss Start-up Monitor Foundation and Professor for Entrepreneurship at the University of St. Gallen (HSG) states: “Painting all new firms with the same broad brush would be an oversimplification and the interpretation of such data would be misleading”. Second, in order to make a conclusion about the long-term contribution of start-ups to net job creation, the post-entry dynamics of start-ups would need to be examined. A narrow focus on only early-stage companies would be misleading, since start-ups, by definition, have a positive net job creation rate in their first year.
However, taking the above mentioned aspects into account, a valid and reliable long-term database of Swiss start-ups is urgently required. Looking ahead, the next few years of data collection by the Swiss Start-up Monitor will begin to close this gap and will also provide critical insights into the relationship between start-ups and economic dynamism.
The Swiss Start-up Monitor is a Swiss based foundation established jointly by ETH Zurich , University of St. Gallen and University of Basel , and is supported by the Commission for Technology and Innovation (CTI). The Start-up Monitor Foundation maps, monitors and helps develop start-up ecosystems in Switzerland and beyond. Moreover, it supports start-ups during their growth phase and lets them track their own performance and benchmark themselves against their peers. Visit the Start-up Monitor Homepage to get more information: www.startupmonitor.ch.
0Comments
Please login or sign up to comment.
Commenting guidelines