Larry Scheinfeld: Do Startups Really Create New/More/Better Jobs?

Thanks to the success of companies like Dropbox, Pinterest, and Airbnb, startups have earned a reputation for launching the careers of bold entrepreneurs and support staff that turn dreams into billion-dollar companies. However, these stories of achievement are not the norm. In fact, many startups take years to reach just low six-figure revenues, and 90 percent fail to achieve any revenues at all. With the landscape so uneven, research reveals that startups do create new good jobs, but they can also produce many less desirable ones.

In order to conduct their investigations, researchers first had to define what a startup is. On one hand, it can be argued that every business was once a startup, and this is, in fact, the broadest scholastic definition of the term. However, companies that economists think of as startups exhibit organizational features that differentiate them from standard infant small businesses. Specifically, economists define startups as tech companies backed by venture capital.

On a macro level, venture-backed startups have been a leading driver of employment and economic growth. Research published in late 2015 by Will Gornall of the University of British Columbia’s Division of Finance and Ilya A. Strebulaev of Stanford University’s Graduate School of Business and the National Bureau of Economic Research shows that venture capital-backed public companies—i.e., successful startups—employ four million people. They also account for 20 percent of market capitalization and 44 percent of research and development spending of American public companies.

Moreover, because startups generate new ways of doing things, they not only create jobs at their own companies but at their customers’ companies as well. For example, new tech tools have led to a boom in demand for software engineers, who can expect to receive recruitment emails from established, non-tech companies multiple times per year. “After [new] products or services are brought to market, there is a growing group of people working behind the scenes to keep the customer and client happy with their experience,” observed Courtney Montpas, the regional general manager of the West Coast at, a company that matches talent with tech companies.

However, jobs created by startups can also be problematic. Because most startups do not reach anywhere remotely close to the billion dollar valuations of brands such as Snapchat or Uber, they are unable to pay its employees high salaries. A recent Danish study conducted by Johan M. Kuhn, Nikolaj Malchow-Møller , and Anders Sørensen also reveals that a disproportionate number of startup-created jobs are for low-skilled service laborers. Additionally, the new jobs startups create sometimes disrupt already established ones. Whenever a startup introduces a new way of doing things, it changes the public perception of older methods, products, or services, which can result in job loss as new innovations take root.

But, research from the Kauffman Foundation and Engine Advocacy reveals that some existing companies are also job destroyers. The report, titled “Tech Starts: High-Technology Business Formation and Job Creation in the United States” also shows that even when taking into account their high failure rate, young tech startups create many more jobs than they destroy.

This graph from the Kauffman-sponsored report illustrates that as companies get older, they end up destroying jobs.

This graph from the Kauffman report illustrates that companies utilize more employees as they grow out of infancy.