St. Louis Fed Economist Discusses Challenges Facing New Business Startups Despite Job Creation Potential

In 2023, a St. Louis Federal Reserve economist, Charles Gascon, revealed that despite startups being responsible for creating a majority of the jobs from 2020 to 2021, their net job creation is small and sometimes even negative. This is because many startups close down within five years due to pay-related issues.

Gascon also pointed out that most startups are not tech companies but small businesses such as restaurants or professional service firms like law or accounting firms. He noted that the composition of startups mirrors the broader industry composition of the United States, with the exception of high barriers to entry industries such as manufacturing or utilities production.

According to Gascon, businesses that have been around for at least 11 years also contributed positively to the growing economy during the COVID-19 pandemic years. The Federal Reserve Bank of St. Louis reported that startups account for about 2% of the total employment in the U.S. economy. However, Gascon’s revelation raises questions about the long-term viability of these businesses due to their small net job creation and negative job creation in some cases.