Startup Companies Driving Job Growth in Tech Sector

March 1, 2013

The job market looks relatively healthy in the United States, with unemployment dipping under 8 percent for the first time in years, but the credit for the nation's strong employment numbers shouldn't be shared equally. According to a study by the Ewing Marion Kauffman Foundation, growth in IT jobs in the U.S. is driven only by startup firms, while existing companies are consistently subtracting jobs from the market.

Based on data from the Business Dynamics Statistics, the Kauffman study found that for all but seven years between 1977 and 2005, existing firms were job destroyers. New firms, by contrast, added a combined 3 million jobs during year one. Even during recessions, startups continued to have a positive effect on employment numbers, while existing companies were highly sensitive to the whims of the economy.

Startups have been especially strong in recent years, as the market for mobile solutions and mobile apps has created an entirely new realm of available jobs. A TechNet study conducted by Michael Mandel revealed that the mobile app economy is responsible for 466,000 American jobs. While some of these positions sprung up at already existing large tech companies – Electronic Arts, Amazon and AT&T to name a few – many originated at new corporations that arose to sate the public's need for mobile apps.

All of this job growth has come since 2007, when Apple first unveiled the iPhone. According to the Bureau of Labor Statistics, the app industry has produced more jobs during that time period than software publishers, wireless telecom providers, or Internet publishers.

There are a number of reasons that existing firms have struggled to create jobs. A Bloomberg report highlighted a few potential underlying causes – primarily, businesses remain uncertain about potentially looming tax increases and government spending cuts. The so-called "fiscal cliff" has left companies in an insecure position, lacking the necessary confidence to hire more staff in 2013.

"The labor market is improving, but certainly not at a robust rate," Ameriprise Financial economist Russell Price said. "We're still going to see that relatively modest pace of advancement in the first part of 2013 as businesses wait to see how the adjustments with payroll taxes and spending cuts affect the economy."

While Americans wait on existing tech firms to pump more jobs into the market, they're relying on startups to tide them over. So far, it's working.