by Benjamin Zycher
Pacific Research Institute
May 17, 2013
Notwithstanding the often-repeated conventional wisdom that “small business” is responsible for most employment growth, the modern scholarly literature finds that it is new (and perhaps young) businesses—startups—that contribute disproportionately to both gross and net employment creation. This paper examines the effect of new business firms (“startup businesses”) and net employment creation by those firms on state gross product, using a sample of 49 states for the period 1977 through 2010. Each net job created by startup firms is estimated to increase state gross product by almost $1.2 million in a given year. Policymakers should focus on both the ability of startup firms to establish themselves and to succeed, and the ability of startup firms to hire workers.

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