(Image Source: Casey Horner / Unsplash)
A recent report by the Bureau of Labor Statistics finds that over the past 30 years, new businesses have been getting smaller and smaller. Specifically, the number of jobs that companies report upon opening has been decreasing. The informal term for this is “birth weight” — the average number of jobs created by a new business.
Since new business creation drives job creation, a decline in the birth weight of new establishments can signal changes in the overall employment market. We can get a sense of the scope of change by comparing the birth weights and five-year weights for new establishments born in 1994 and 2017 that survived at least five years.
New businesses that opened in 1994 and survived at least five years reported an average of 7.4 jobs upon opening, 9.1 jobs at their one-year anniversary, 11.4 jobs at three years, and 13.2 at five years. In comparison, new establishments that opened in 2017 reported 4.2 jobs at birth, 5.4 jobs at their one-year anniversary, 7.0 jobs at three years, and 8.2 jobs at five years.
This brings us to this week’s quiz question. 2021 is the latest year for which data is available. Of course, we won’t have five-year survival rates for those businesses until 2026. Do you think the birth weight of all businesses, those that survive and those that die, is higher or lower than the birth weight for establishments born in 1994 and 2017 that survived at least five years? What is the birth weight for all establishments born in 2021?
Answer: A. Establishments are quite a bit smaller than they used to be. The average birth weight for new establishments in 2021 was 2.7 jobs.