Jobs: Why start-ups are important

Wyatt Roy, our youngest ever federal minister in Malcolm Turnbull’s new-look government, has been making all the right noises about accepting the technological challenges of the 21^st century as he settles into his role as Assistant Minister for Innovation.

But it’s the overall impact of small business start-ups that will be concentrating the mind of his direct report Minister for Industry, Innovation and Science, Christopher Pyne.

A paper released this week by the Department of Industry and Science supported by the Bureau of Statistics entitled The employment dynamics of Australian entrepreneurship for the first time highlights the disproportionate impact of small start-ups on employment opportunities.

Using 10-years of data, the summary page makes compelling reading because it shows Australia replicating similar economies overseas if it can accelerate the creation of new innovate small businesses.

Some of the conclusions reveal:  

# Young firms in Australia contribute disproportionately to net job creation. Although employing a small fraction of the Australian workforce (15 per cent), young small/medium enterprises generated the largest share of total job creation (40 percent) in the economy.

# For every 100 existing jobs in Australia in any given year, start-ups will, on average, add five jobs within the following three years.

# Over the period 2006–2011 start-ups are estimated to have added 1.44million FTE jobs to the economy, whereas older firms (three+years) shed around 400,000 FTEs over the same period.

# A small fraction (3.2 percent) of micro-start-ups grow dramatically over five years post-entry and these firms account for the majority (77 per cent) of total post-entry job creation of all micro-start-ups in their cohort. These high growth start-ups are found in all sectors of the economy.

# The sales and profit performance of these high growth firms is superior to those that remain stable or only grow marginally after five years. However their labour productivity is lower during that period of dramatic employment growth and investment.

# The employment generated per start-up is still low compared with other OECD countries.

The takeaway here seems to be that when dealing with young innovate firms you must accept failure but the ones that succeed, do spectacularly well and will employ a lot of Australians.  

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