Working Hard, or Hardly Working?

Where do jobs come from?

It’s a reasonable question in light of the recent jobs report. The economy created a measly 50 thousand jobs last month, following gains that averaged over 200 thousand over the past three months. Government employment fell, as did manufacturing jobs in light of the supply constraints coming out of Japan, while professional services and health care jobs grew.

But where do the jobs come from? Predominantly, they come from new small, young firms. In a recent study over 60% of new jobs came from companies less than 6 years old, and 53% of new jobs came firms with less than 50 employees. Part of this is structural: since most firms have only an 80% chance of surviving in any one year, after 5 years only 35% of those firms will survive, and 65% of the jobs will be in younger firms. That’s just mathematics.

So some of this is the creative destruction of old firms by new, smaller companies. Jobs are neither created nor destroyed when a company goes out of business and its employees find work elsewhere in the industry. But part of it is policy: when younger firms start fresh with the intellectual capital the founders might have been able to gather at old-line firms, everyone benefits. Consumers get a more closely tailored product, the small firm gets to get closer to customers and control their own destiny, and the larger firm may lose a creative individual who may have been disruptive in the office.

Jobs are created when entrepreneurs see a way to serve their customers more effectively. Government can help, but mainly by leveling the playing field and staying out of the way.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By |2014-09-11T11:21:07+00:00June 5th, 2011|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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