Milstein Symposium: Entrepreneurship and the Middle Class
America has a middle-class jobs problem. Over the past thirty years, jobs paying middle-class salaries—that is, occupations paying within 50 percent of median earnings— have been disappearing, at least relative to the high-wage and low-wage jobs on the pay scale. Moreover, this declining trend has occurred as the median wage itself has stagnated. In the wake of the Great Recession and after the worst decade of job growth in over 50 years, the U.S. is left with an alarming middle-class jobs gap. The 2013-14 Milstein Symposium seeks to address this critical employment challenge by fostering thoughtful conversation and productive dialogue about how to create and sustain the jobs of the future. The next commission in this series, which convenes May 12-13, will focus on whether and how entrepreneurs and entrepreneurship can restart the engine of middle-class job creation.
BAT TEN BR IEFI N G IMPROVING THE WORLD THROUGH ENTREPRENEURSHIP AND INNOVATION APR 2014 Entrepreneurship and the Middle Class: CAN STARTUPS SAVE THE AMERICAN DREAM? Presented by the University of Virginia’s Miller Center in partnership with the Batten Institute for Entrepreneurship and Innovation, University of Virginia Darden School of Business A Research Briefing for the Howard P. Milstein Symposium: Ideas for a New American Century ABOUT THE MILSTEIN SYMPOSIUM The University of Virginia’s Miller Center launched the Howard P . Milstein Symposium: Ideas for a New American Century in September 2013. This five-year initiative convenes distinguished stakeholders and eminent scholars to advance innovative, non-partisan, action-oriented ideas, grounded in history, to help rebuild the American Dream. The Miller Center will organize three Milstein commissions each year. IN BRIEF America has a middle-class jobs problem. Over the past thirty years, jobs paying middle-class salaries—that is, occupations paying within 50 percent of median earnings—have been disappearing, at least relative to the high-wage and low-wage jobs on the pay scale. Moreover, this declining trend has occurred as the median wage itself has in over 50 years, the U.S. is left with an alarming middle-class jobs gap.1 stagnated. In the wake of the Great Recession and after the worst decade of job growth The 2013-14 season of the Milstein Symposium seeks to address this critical employment challenge by fostering thoughtful conversation and productive dialogue about how to create and sustain the jobs of the future. The next commission in this series, preneurship can restart the engine of middle-class job creation. which convenes May 12-13, will focus on whether and how entrepreneurs and entreThis Batten Briefing offers a brief overview of the issues relevant for this discus- sion, beginning with a picture of middle-class employment, the effects of recession lead scholars and recovery on that sector, and a summary of the causes for the “hollowing-out” of middle-class jobs. The second part of the Briefing explores the job-creating potential for entrepreneurship, including a profile of today’s entrepreneurs, and concludes middle-class opportunities. Sean Carr Executive Director, Batten Institute, Assistant Professor of Business Administration firstname.lastname@example.org with potential policy levers that may motivate entrepreneurial activities that generate Michael Lenox Samuel L. Slover Research Professor of Business, Academic Director and Associate Dean, Batten Institute, email@example.com SPECIAL ISSUE Stuck in the Middle: THE NEW NORMAL OF U.S. EMPLOYMENT Within a single generation—over the past 25 to 30 years—the U.S. labor market has been, “hollowed out.” Starting in the late 1970s in the words of MIT economist David Autor, there has been an increasing concentration of employment in the highest- and lowest-skill occupations, as jobs in middle-skill occupations disappear. Consider, for example, the percentage change in employment by skills 100% 80% 60% 40% 20% 0% HIGH SKILL UPPER MIDDLE LOWER MIDDLE LOW SKILL JOB GROWTH (1980 - 2010) group between 1980 and 2010 in the accombeen strongest for high-skill and low-skill skill group. panying chart; we clearly see that growth has workers, but relatively weak for the middleThis hollowing-out pattern is even more Source: Federal Reserve Bank of New York, using U.S. Census data. starkly apparent when we consider changes in median wages over the same thirty-year period. High-skill workers experienced a nearly 40 percent gain in wages; similarly, low-skill middle-skill wage growth hovered under 10 percent, with many of these workers having graphically illustrates the phenomenon of job polarization: an increasing concentrawages grew at about half that rate. However, no wage growth whatsoever. This bifurcation 40% GROWTH IN REAL MEDIAN WAGES (1980 - 2010) tion of jobs at both the high and low ends of the wage scale, with a relative reduction in middle-wage jobs.2 30% 20% 10% Recession and Recovery Recessions are tough all around, but they tend to exacerbate the job-polarization phenomenon, with relatively more job losses affecting periods. For example, during the most recent downturn, 60 percent of the net job losses middle-wage occupations during recessionary 0% HIGH SKILL UPPER MIDDLE LOWER MIDDLE LOW SKILL occurred in middle-income occupations with median hourly wages of $13.84 to $21.13.3 This is reflected in the accompanying chart, BATTEN BRIEFING Source: Federal Reserve Bank of New York, using U.S. Census data. 2 Stuck in the Middle [ c o n t i n u e d ] JOB GROWTH DURING RECESSION (2008-2010) 2% HIGH WAGE UPPER MIDDLE LOWER MIDDLE LOW WAGE which shows that during the recessionary years of 2008 to 2010, jobs in all wage groups suffered losses, but the middle-wage occupations were hit much harder, and by several 0% orders of magnitude. Middle-class jobs also suffer, relatively speaking, during the upturn. Middle-wage occupations accounted for less than a quarter of -2% the net job gains during the current recovery, -4% whereas low-wage occupations with median hourly wages of $7.69 to $13.83 benefited half of the gains. disproportionately more, claiming roughly -6% According to a recent analysis by the Federal -8% Reserve Bank of Atlanta, the lowest-wage sectors have consistently produced 40 percent to 50 percent of the job gains during recent recoveries.4 In fact, during the current recovery period, more than 40 percent of job growth has been in the lowest-paying sectors, such as JOB GROWTH DURING RECOVERY (2010-2012) retail, leisure and hospitality, and temporary employment agencies.5 Poor growth in middle-wage jobs during 6% the early stages of a recovery contributes to the phenomenon of the jobless recovery. This 4% rebounds in aggregate output (GDP) are refers to those periods after recessions when accompanied by much slower recoveries in 2% aggregate employment. After the past three employment continued to decline for years recessions (1991, 2001, and 2009), aggregate even once the turning point in aggregate HIGH WAGE UPPER MIDDLE LOWER MIDDLE LOW WAGE 0% income and output had been reached.6 This is important since jobs in middle-wage sectors are being replaced at a slower rate than those at the higher and lower end of the wage specSource: Source: Oregon Office of Economic Analysis. trum, resulting in further downward pressure on middle-wage jobs. 3 Brave New World: CAUSES OF THE MIDDLE-CLASS JOBS GAP There is reason to be skeptical of the assumption that machines will leave humanity without jobs. After all, history has seen many waves of innovation and automation, and yet as recently as 2000, the rate of unemployment was a mere 4 percent. There are unlimited human wants, so there is always more work to be done.” 10 Tyler Cowen, professor of economics, George Mason University Over the past thirty years, employment has become remarkably concentrated at the enduring realignment of U.S. jobs? The dominant explanation among many economists is that today’s employment patterns have been re-shaped by the double-helix forces of technological advance and market globalization. tails of the occupational skill and wage distribution—but why? What has caused this Technological Unemployment In 1930 the economist John Maynard Keynes wrote an essay entitled, “Economic Possibilities for Our Grandchildren,” in which he introduced the concept of “technological unemployment.”7 This is the idea that while new technologies may enhance productivity and maximize efficiency, they may also put people out of work, at least in the short term. Keynes emphasized that technological unemployment would be “only a temporary phase of adjustment,” and for most of the past 80 years, he was right. Over the long run, significant advances in technology have ultimately been complements for human labor and skill, rather than substitutes. But now, at least according to some, that assertion may no longer hold true. The Great De-Coupling In a series of influential books and articles, Erik Brynjolfsson and Andrew McAfee have extended Keynes’ “technological unemployment” concept with a compelling arThey point to a productivity paradox, which is illustrated in the accompanying pair of charts. They show that, starting in the mid-1970s, and then accelerating in the gument for why today’s technologies are creating entirely new employment patterns. mid-1990s, there has been a “great de-coupling” between productivity (i.e., defined as gross domestic product, or GDP) and per-capita income and private employment. LABOR PRODUCTIVITY AND PRIVATE EMPLOYMENT 140 130 120 110 100 90 80 70 1997=100 REAL GDP V. MEDIAN INCOME 200 180 160 140 Real GDP per Capita Labor Productivity Private Employment 120 100 1975=100 Median Income per Capita 60 50 1972 1977 1982 1987 1992 1997 2002 2007 2012 80 60 2005 1960 1965 1970 1975 1980 1985 1990 1995 4 BATTEN BRIEFING Source: Erik Brynjolfsson and Andrew McAfee, 2014. The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies. 2000 2010 Brave New World [ c o n t i n u e d ] Historically the rate of employment and income growth more or less kept pace with overall productivity. But about thirty years ago all that started to change, and every year since then the gap has only grown wider. Brynjolfsson and McAfee, as well as MILSTEIN SYMPOSIUM #2 Entrepreneurship and Middle-Class Job Creation 12-13 May 2014 CO-CHAIRS Steve Case, chairman, Startup America Partnership; co-chair, National Advisory Council on Innovation and Entrepreneurship; founder and former CEO, AOL Carly Fiorina, president, Carly Fiorina Enterprises; former chair and CEO, Hewlett-Packard other leading scholars, have suggested that technology, in the form of computerizathe forces of globalization—have fundamentally changed the market’s demand for middle-skill, middle-wage labor. tion, automation and other efficiency-enhancing digital technologies—coupled with Computerization, Automation and Globalization Brynjolfsson and McAfee suggest that the relative decline in middle-skill and middle-wage jobs is linked to the disappearance of occupations that reply on ‘routine’ tasks—activities that can often be performed by following a well-defined set of procedures.8 Computerization, automation, and globalization have quickly (and, COMMISSIONERS Ross Baird, executive director, Village Capital Aaron “Ronnie” Chatterji, Associate Professor, Duke University’s Fuqua School of Business; former Senior Economist at the White House Council of Economic Advisers Amy Cosper, vice president and editor-in-chief, Entrepreneur magazine James Douglas, former Governor of Vermont, 2003-2011 Jacob Hacker, director of the Institution for Social and Policy Studies and Stanley B. Resor Professor of Political Science, Yale University Jen Medbery, founder, Kickboard Brian Meece, founder and CEO, RocketHub Lenny Mendonca, entrepreneur and director emeritus, McKinsey & Company Karen Mills, Senior Fellow, Harvard Business School; former SBA Administrator Warren Thompson, founder, president and chairman, Thompson Hospitality in some cases, permanently) replaced such routine-based jobs. These roles, which do not involve manual tasks and do not need to be performed near an actual customer, other countries. have been taken over by machines or they’ve been outsourced to low-cost workers in Ironically, employment losses in the middle have become gains at the high and low end of the jobs spectrum. The diffusion of technology has created significant employment opportunities for many high-skill and high-wage workers, such as engineers, software developers, and others who use technology in their work. Technology has also increased the need for workers who can perform nonroutine tasks that cannot be automated, such as retail salespeople, restaurant workers, and security guards. Between 1980 and 2005, the share of hours worked in service occupations among noncollege workers rose by more than 50 percent. At the same time, the real hourly wages of those same service workers increased, considerably surpassing wage growth in other low-skill occupations.9 The accessibility of global labor markets has also put downward pressure on the demand for middle-skill and middle-wage jobs in the United States. Inexpensive labor overseas—some of which has been enabled by new information and communications technologies—has displaced many middle-skill, middle-wage jobs in the U.S. (e.g., customer-service call centers and on-demand manufacturing). And yet, at the same time, occupations that require personal contact and face-to-face interaction performed remotely. have been protected from the forces of globalization since these jobs cannot be easily 5 Revving the Engines: ARE STARTUPS JOB-GROWTH ACCELERATORS? By some measures startups have been prodigious job creators in this country. According to an analysis of the U.S. Census NET NEW JOBS FROM STARTUPS v. EXISTING FIRMS (1977–2005) 5M 4M 3M 2M 1M 0 -1M -2M -3M -4M -5M 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2008 2005 2010 Bureau’s Business Dynamics Statistics by and 2005 businesses less than five years the Kauffman Foundation, between 1977 old created roughly three million net new jobs each year on average; this compares each year by all other firms. 11 with nearly one million net jobs destroyed Similarly, research from the University of Maryland and the U.S. Census Bureau those less than one year old) have acfound that the very newest firms (that is, counted for 20 percent of all new jobs in the U.S. So-called “young firms,” which are businesses more than one- but less than five-years-old, may account for as NET JOB CHANGE NET JOB CHANGE - STARTUPS EXISTING FIRMS much as two-thirds of all U.S. job creation, averaging about four new jobs per firm annually.12 Source: Kane, Tim. 2010. “The Importance of Startups in Job Creation and Job Destruction.” Kauffman Foundation Research Series: Firm Formation and Economic Growth. Ewing Marion Kauffman Foundation. There is, however, rapidly emerging eviis sputtering. Over the same thirty-year period, the U.S. has been experiencing a slow but steady decline in the overall DECLINING SHARE OF ACTIVITY FROM YOUNG FIRMS (Firm Age Five Years or Less) U.S. Private Sector 60 55 50 45 40 PERCENT dence that the startup job-creation engine rate of new startup activity. According to a recent analysis of Census Bureau data age of all firms in the U.S. has dropped 13 the number of startup firms as a percentfrom about twelve percent in the 1980s it’s not as though the size of these new 35 30 25 20 1980 1982 1984 1983 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 to roughly seven percent in 2010. And businesses has grown either—the average startup still employs fewer than ten workfall-off in the contribution rate of new ers. As a result, there has been an alarming jobs to the economy by startups over time. SHARE OF FIRMS THAT ARE YOUNG SHARE OF JOB CREATION FROM YOUNG FIRMS SHARE OF EMPLOYMENT FROM YOUNG FIRMS Source: Kauffman Foundation using Business Dynamics Statistics ( RIGHT AXIS ) 6 BATTEN BRIEFING Revving the Engines [ c o n t i n u e d ] AVERAGE ANNUAL NET JOB CREATION 1-5 YEARS 6% High-Tech Job creation from business startups was 11+ YEA RS 6-10 YEARS lower in 2009 than at any time since 1980. Throughout the 1980s workers employed by startups accounted for an average of 3.5 percent of the total U.S. job force; in the 1990s, this fell to 3.0 percent, and in the 2000s it dropped to 2.6 percent, ICT High-Tech 3% 0% Total Private representing a 25 percent decline in job -3% gests that firms established in 2009 will creation by startups.14 Some research sug- AVERAGE NET JOB CREATION BY SURVIVING COMPANIES 12% 9% 6% 3% 0% -3% ICT High-Tech High-Tech Total Private create one million fewer jobs during their first 5 to 10 years, relative to historical averages.15 The Great Recession has only made things worse: between 2006 and 2009 there has been a 34 percent decline in job creation from startups, the lowest rate of job creation from new firms in three decades.16 The job creation picture is somewhat better when we look at certain sectors, particularly those considered in highjob growth among young firms in the growth areas. We see positive annual net AVERAGE FIRM EMPLOYMENT BY FIRM AGE = 1 person high-tech and information and communication technology (ICT) sectors between 1990 and 2011. However, all firms more than five years-old experienced net job destruction. When we exclude all firms that failed from the analysis, net job creICT High-Tech High-Tech Total Private ation for businesses less than 10 years-old is considerably improved.17 1-5 YEARS 6-10 YEARS 11+ YEA RS Source for Adjacent Graphs: Kauffman Foundation using U.S. Census Bureau Business Dynamics Statistics and Special Tabulation 7 Revving the Engines [ c o n t i n u e d ] FORTUNE MAGAZINE'S TOP GROWING COMPANIES (2011) Source: Fortune Magazine. Feb. 6, 2012 Number of Startups as Percentage of All Firms By Number of Employees 1 2 3 4 Google Darden Restaurants Novo Nordisk Marriott International Whole Foods Market Deloitte Accenture Cisco PricewaterhouseCoopers best cos rank new employees u.s. employees 1 99 43 57 32 67 92 90 48 80 best cos rank 7,020 5,137 3,957 2,951 2,699 2,630 2,600 2,486 2,468 1,981 18,500 169,516 3,961 108,939 60,213 41,125 34,000 34,847 30,569 10,368 u.s. employees IN 1980 12% 5 6 7 8 9 10 Stryker By Percent of Job Growth % job growth 70% 39% 37% 33% 30% 27% 27% 25% 24% 23 IN 2010 7% 1 2 3 4 5 6 7 8 9 Zappos.com Salesforce.com Rackspace Hosting Google NetApp Schweitzer Engineering Labs Meridian Health GoDaddy.com Stryker 11 27 74 1 6 97 96 93 80 18 3,003 3,802 3,027 18,500 6,887 1,992 9,333 3,274 10,368 10,502 Source: Kauffman Foundation using Business Dynamics Statistics SMALL/MEDIUM ENTERPRISE V. INNOVATION DRIVEN Revenue, Cash Flow and Jobs over Time JOBS 10 Chesapeake Energy / CASH FLOW / SMALL/MEDIUM ENTERPRISE v. INNOVATION-DRIVEN: Revenue, Cash Flow and Jobs over Time small/medium enterprise entrepreneurship TIME innovation-driven entrepreneurship REVENUE Source: Aulet, Bill and Fiona Murray. 2013. “A Tale of Two Entrepreneurs: understanding Difference in the Types of Entrepreneurship in the Economy.” Ewing Marion Kauffman Foundation. 8 BATTEN BRIEFING Older and Wiser: UNDERSTANDING THE U.S. ENTREPRENEUR NUMBER OF YEARS OF PRIOR EXPERIENCE FOUNDERS ACCUMULATED BEFORE FOUNDING A COMPANY IN 2013 The job-creating potential of startups appears somewhat mixed, although there is some evidence that high-growth, innovation-driven 10 + years 42% EXPERIENCE enterprises may hold the most promise. What 22% remains especially murky for most researchers is the degree to which ventures established by today’s entrepreneurs are resulting in the 1-5 years creation of middle-class jobs. We simply do not have adequate measures of whether new Less than a year 20% 6-10 years 16% businesses are leading predominantly to low-, middle-, or high-wage positions. We do, however, have data about the encharts here illustrate, company founders trepreneurs themselves. For instance, as the HIGHEST DEGREE EARNED BY FOUNDERS STARTING BUSINESS IN 2013 tend to have more than 10 years of experimaster’s degree ence before starting their business, and a vast 28% technical, trade, or vocational degree or some college or associate degree 34% bachelor’s degree 23% majority have earned at least a college degree ages of 30 and 60 years old. 18 or higher. They are also generally between the Even though we cannot say for certain whether new businesses generate middle-class professional school or doctorate 7% 8% high school graduate or equivalent or less jobs, we do know that company founders come directly from the middle-class themstudy, 72% of entrepreneurs surveyed come from self-described middle-class backgrounds. Moreover, another 22% reported selves. According to a Kauffman Foundation AGE DISTRIBUTION OF FOUNDERS OF NEWLY STARTED BUSINESSES IN 2013 ages 50-59 being from “upper-lower-class” backgrounds led by blue-collar workers (see chart on following page).19 19% 24% ages 40-49 ages 60+ 14% AGE 15% ages 30-39 27% ages 18-29 Source for Adjacent Graphics: Kauffman Foundation and Legal Zoom. "Who Started New Businesses in 2013." January 2014 9 Older and Wiser [ c o n t i n u e d ] Small Companies Tend to Stay Small SOCIOECONOMIC BACKGROUND FOR 549 FOUNDERS ACROSS MANY INDUSTRIES AND STARTUP DATES How would you describe your family's circumstances as you grew up? 23.0% of New Firms Say They Want to Be “Big” 17.9% of Firms Expect to Develop Proprietary Technology 9.2% 40% 35% 30% 25% 20% 15% 10% 5% 0% UPPER CLASS of Firms Expect to Apply for a Patent, Copyright or Trademark 8.0% of Firms Expect R&D Spending Will Be a Major Priority 19.5% of Firms Surviving for 10 Years Have More Than 20 Employees Source: Hurst, Erik and Benjamin Wild Pugsley. 2011. “What Do Small Businesses Do?” National Bureau of Economic Research. Working paper. Retrieved from: http://www.nber.org/ papers/w17041 upper UPPER CLASS lower MIDDLE CLASS upper MIDDLE CLASS lower LOWER CLASS upper LOWER CLASS lower Class definitions Definitions for socioeconomic status by Dennis Gilbert. [E]ntrepreneurship and the middle class are inextricably linked; a strong middle class fosters innovation and encourages entrepreneurs to start their own businesses, which in turn creates good jobs that support a growing economy and an increasing middle class.” Karen Mills, former Administrator, Small Business Administration UPPER-UPPER CLASS: “Old money;” people who have been born into and raised with wealth; mostly consists of old “noble” or prestigious families. LOWER-UPPER CLASS: “New money;” individuals who have become rich within their own lifetimes. UPPER-MIDDLE CLASS: Professionals with a college education and, more often, with postgraduate degrees like MBAs, PhDs, MDs, JDs, MSs, etc. LOWER-MIDDLE CLASS: Lower-paid white collar workers, but not manual laborers. Often hold associate’s or bachelor’s degrees. UPPER-LOWER CLASS: Blue-collar workers and manual laborers. Also known as the “working class.” LOWER-LOWER CLASS: The homeless and permanently unemployed, as well as the “working poor.” Source: The Anatomy of an Entrepreneur: Family Background and Motivation. The Kauffman Foundation. July 2009. Class definitions from Gilbert's The American Class Structure: In An Age of Growing Inequality. 10 BATTEN BRIEFING Which Levers to Pull? ENCOURAGING MIDDLE-CLASS JOB CREATION Jefferson Innovation Summit DECLARATION OF PRINCIPLES Guided by these principles, we declare that an innovative and entrepreneurial society shall be established and affirmed upon the following foundations: Comprehensive educational system that develops and inspires all people to be curious and creative leaders by providing experiential learning opportunities and exposure to imaginative and entrepreneurial role models. Entrepreneurial culture that inspires and empowers communities and individuals to embrace, nurture, and celebrate innovators and entrepreneurs. Collaborative public and private financial institutions that promote appropriate investment in innovative research, entrepreneurial startups, and social enterprises. Progressive immigration policies that attract and retain the best talent in the world and encourage them to work for local businesses and launch their own ventures. Coherent tax structure that encourages investors, managers, entrepreneurs and inventors to allocate greater risk capital to research, development, and new venture creation. Nimble and professionalized regulatory system that simplifies and harmonizes regulation across nations, states, regions, and municipalities enabling productive and progressive risk taking. Modernized intellectual property laws that reflect the realities of the post-industrial age in order to improve collaborative efficiency and better incentivize the co-creation of new ideas, technologies, and ventures. 22 If we accept that entrepreneurship can be an important creator of middle-class jobs, what levers are available to foster more entrepreneurial activity? There have been many efforts to suggest a framework for thinking about this challenge. For example, the inaugural Jefferson Innovation Summit in 2011 generated a list of seven broad principles for sustaining a robust entrepreneurial society, including education, finance, immigration, regulation, intellectual property, taxation, and culture (see sidebar). Similarly the President’s Council on Jobs and Competitiveness proposed eight ing the Small Business Administration, commercializing federally funded research, and reducing student loan burdens. 20 specific recommendations for encouraging high-growth enterprises, such as reform- When considering whether startups can revive the American Dream, it is essential to consider whether all forms of entrepreneurship are equivalent as job creators for especially as new ventures enter as failed ventures exit industry sectors. For startthe middle class. Start-ups are characterized by high failure rates and high turnover, ups that endure, many survive only as small businesses—serving as vital creators of jobs, even though they create relative few jobs per venture. In fact, only a relatively small number of startups become what have been characterized as “gazelles”—high period.21 growth companies that demonstrate at least a doubling of revenues over a four-year A study by economist Zoltan Acs in 2008 found that only 2% to 3% of all busi- nesses can be classified as gazelles. However, many of these firms are the largest job creators. For example, Fortune’s 2012 listing of the top job creators in the U.S. cited Google as #1 with over 7,000 new employees hired. Research from the University of Maryland and the National Bureau of Economic Research suggests that such young, high-growth firms are also the most productive net job creators. However, some gazelles, especially in the high tech sector, have achieved phenomenal financial results with relatively limited employment. Instagram was valued at 23 $1 billion when acquired by Facebook while officially employing approximately 12 4,500 employees in 2013 while valued close to $100 billion.24 Many of the highest people (or $83 million per employee). Facebook itself employed slight more than employment-growth firms fall into the retail and service sector, raising questions tunities for the middle class. about what types of jobs are being created and whether those actually create oppor- 11 Which Levers to Pull? [continued] When it comes to middle-class job creation there remains a lack of clarity on where focus on: • • • • the greatest leverage can be applied. Where would efforts best be placed? Should we Identifying and fostering “gazelles” - perhaps targeting specific sectors such as energy or technology? Encouraging overall startup activity, thereby increasing the throughput of ventures by increasing the pool from which gazelles can emerge? ing the throughput of ventures? Reducing failure rates by reducing barriers to survival and growth thus increasFostering the creation of more small businesses and self-employment as a powerful vehicle for middle-class employment? Each of these efforts suggests a different mix of policy instruments. In a world of scarcity, how to do we best allocate effort to increase entrepreneurship that leads to the substantial creation of middle-class jobs and the revitalization of the American Dream? Essential Reading The Second Machine Age: Work, Progress and Prosperity in a Time of Brilliant Technologies Erik Brunjolfsson and Andrew McAfee (W.W. Norton & Company, 2014) The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better Tyler Cowen (Dutton, 2011) Capital in the Twenty-First Century Thomas Piketty (Belkap Press, 2014) 12 BATTEN BRIEFING END NOTES 1 Krueger, Alan. B. (2012) “Reversing the Middle- 13 Haltiwanger, John C., Ron S. Jarmin, and Javier 21 Birch, David G.W. 1979. “The Job Generation Pro- Class Jobs Deficit.” Columbia University, The Center on Global Economic Governance. Remarks as prepared for delivery. 2 Miranda. 2012. “Business Dynamics Statistics Briefing: Where Have All the Young Firms Gone?” Ewing Marion Kauffman Foundation. Retrieved from: http:// www.census.gov/ces/pdf/BDS_StatBrief6_Young_ Firms.pdf 14 cess.” MIT Program on Neighborhood and Regional Change, Vol. 302, pp. 1979. Retrieved from SSRN: http://ssrn.com/abstract=1510007 22 Abel, Jaison R. and Richard Deitz. 2012. “Job Acs, Zoltan J., and Pamela Mueller. 2008. “Employ- Polarization and Rising Inequality in the Nation and the New York-Northern New Jersey Region.” Current Issues in Economics and Finance. Federal Reserve Bank of New York: 18(7). 3 ment effects of business dynamics: Mice, Gazelles and Elephants.” Small Business Economics, 30(1): pp. 85-100. 23 Haltiwanger, John. C. “Job Creation and Firm Dynamics in the U.S.” 2011. National Bureau of Economic Research. Working paper, retrieved: http:// www.nber.org/chapters/c12451.pdf 15 Bailey, Jeff. 2012. “Market Cap Per Employee: Ins- D’Andrea Tyson. September 20, 2013. “The Quality tagram Hits $83 Million vs. Office Depot’s $23,000, New York Times' $130,000. WTF?” YCharts. Retrieved from: http://ycharts.com/analysis/story/ market_cap_per_employee_instagram_hits_83_million_vs_office_depots_23000#sthash.IFqbSW3o.dpuf 24 of Jobs: The New Normal and the Old Normal.” The New York Times. 4 Reedy, E.J., and Robert E. Litan. 2011. “Starting Smaller; Staying Smaller: America’s Slow Leak in Job Creation.” Kauffman Foundation Research Series: Firm Formation and Economic Growth. Retrieved from: http://www.kauffman.org/~/media/kauffman_ org/research%20reports%20and%20covers/2011/07/ job_leaks_starting_smaller_study.pdf 16 Altig, Dave. 2013, August 9. “Myth and Reality: The Low-Wage Job Machine.” Federal Reserve Bank of Atlanta (macroblog). Retrieved from: http://macroblog.typepad.com/macroblog/2013/08/myth-andreality-the-low-wage-job-machine.html 5 Rao, Leena. 2013. “Facebook Will Grow Headcount Quickly In 2013 To Develop Money-Making Products, Total Expenses Will Jump By 50 Percent.” TechCrunch. Retrieved from: http://techcrunch. com/2013/01/30/zuck-facebook-will-grow-headcount-quickly-in-2013-to-develop-future-moneymaking-products/ D’Andrea Tyson. September 20, 2013. “The Quality Haltiwanger, John C., Ron S. Jarmin, and Javier of Jobs: The New Normal and the Old Normal.” The New York Times. 6 Miranda. 2011. “Business Dynamics Statistics Briefing: Historically Large Decline in Job Creation from Startup and Existing Firms in the 2008–2009 Recession.” Ewing Marion Kauffman Foundation. Retrieved from: https://www.census.gov/ces/pdf/BDS_StatBrief5_Historical_Decline.pdf 17 Jaimovich, Nir and Henry E. Siu. 2012. “The Trend is the Cycle: Job Polarization and Jobless Recoveries.” National Bureau of Economic Research [working paper]. 7 John Maynard Keynes, Essays in Persuasion, New Jaimovich, Nir and Henry E. Siu. 2012. “The Trend Hathaway, Ian. 2013. “Tech Starts: High-Tech- York: W.W. Norton & Co., 1963, pp. 358-373. 8 nology Business Formation and Job Creation in the United States.” Kauffman Foundation Research Series: Firm Formation and Economic Growth. Retrieved from: http://www.kauffman.org/~/media/ kauffman_org/research%20reports%20and%20covers/2013/08/bdstechstartsreport.pdf 18 is the Cycle: Job Polarization and Jobless Recoveries.” National Bureau of Economic Research [working paper]. 9 Autor, David H. and David Dorn. 2013. “The The Kauffman Foundation and LegalZoom. 2014. Growth of Low-Skill Jobs and the Polarization of the US Labor Market.” American Economic Review, 103(5): 1553-1597. 10 “Who Started New Businesses in 2013?” Ewing Marion Kauffman Foundation. Retrieved from: http://www.kauffman.org/~/media/kauffman_org/ research%20reports%20and%20covers/2014/01/ who_started_new_business_in_2013.pdf 19 Cowen, Tyler. 2014, April 5. “Automation Alone Kane, Tim. 2010. “The Importance of Startups in c o p y r i g h t i n f o r m at i o n BATTEN BRIEFINGS, April, 2014. Published by the Batten Institute at the Darden School of Business, 100 Darden Boulevard, Charlottesville, VA 22903. email: firstname.lastname@example.org www.batteninstitute.org ©2014 The Darden School Foundation. All rights reserved. Isn’t Killing Jobs.” The New York Times, p.B6. 11 Wadwha, Vivek, Raj Aggarwal, Kristina “Z” Holly, Job Creation and Destruction.” Kauffman Foundation Research Series: Firm Formation and Economic Growth. Ewing Marion Kauffman Foundation. 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