Bailed out firms can't create new jobs, startups can
Tuesday, 06 April 2010, 00:20 IST   |    9 Comments
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Bailed out firms can't create new jobs, startups can
Bangalore: To bring the giants like General Motors, AIG, and Citibank out of the the financial crisis, U.S. government spent hundreds of billions of taxpayer money, but economists feel that these massive, mature companies, particularly those that are struggling, don't create new jobs. Instead it is new businesses that fuel this country's employment growth. They opine that these huge handouts by the government are required to ensure the financial meltdown doesn't get any worse, and they may well be right. For instant from 1980 to 2008, startups, defined in this case as companies less than five years old, accounted for all net job growth in the U.S, according to the Kauffman Foundation's Business Dynamics Statistics, a series of reports that rely on newly released data from the Census Bureau. The reports show that average annual net employment growth rate for startups was about three percent a year while the growth of the rest of the U.S. private sector for the same period was about 1.8 percent. So, without these startups, the U.S. net employment growth rate would actually be negative, according to research conducted by Prof Vivek Wadhwa's team at Duke along with Harvard's Richard Freeman. In other words, if President Barack Obama wants to foster a recovery, a good way to do so through the private sector is to focus on creating and supporting new companies. The current approach of pouring money into decrepit, poorly managed companies is actually a way to reverse job and productivity growth in the U.S.

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