Gazelle Firms Shown Best Bet Towards Economic Recovery

By May 20, 2010

The biggest boon to economic recovery may be in startups, according to a Ewing Marion Kauffman Foundation study released last month. Fast-growing young companies, or "gazelle firms," account for the generating of approximately te

n percent of new jobs each year. Job creation is key to steering the economy back into the black, first because by nature it improves employment rates, but this in turn spreads to most other growth-ready categories. Unfortunately, most policy discussions concentrate on expanding job growth in already-established companies.

But instead of new jobs at old companies, the study confirms that it would be more productive to encourage a more friendly environment for  entrepreneurship - "and particularly high-growth entrepreneurship—because top-performing companies are the most fertile source of new jobs." Dane Stangler, author of the study and senior analyst at the Kauffman Foundation, confirmed that the top-performing one percent of firms generate approximately forty percent of all new jobs. The gazelle firms mentioned above comprise less than one percent of all companies, each on average contributing 88 jobs per year. The average company in the economy as a whole adds only two or three new jobs per year.

Young, fast-growing firms account for a disproportionate amount of job creation, explains Research and Policy VP Robert E Litan. Policymakers would be better served to support gazelle firms rather than go gray over unemployment rate projections. Some will fail, but "the more quickly they are launched and in larger numbers, the faster both output and employment will grow."

The study continues by advising policymakers on strategies to foster such firms:

Encourage the creation of new firms - statistically increasing the likelihood of increasing the number of successful firms
Remove entry barriers - blocked access to capital and prohibitive taxes or regulations
Target immigrants and universities, often the best sources of high-growth firm projects

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