Friday, 27 July 2012

Can We Really Depend on Hi-Tech Start-Ups to Power Future Employment?

Many who refute the coming obsopocalypse argue that displacement by technology simply frees people up to do new jobs in more cutting-edge ventures -- ventures often created by the very same disruptive technology. Obviously there new businesses and new jobs categories pop up all the time -- but the related jobs are just not being created in large enough numbers any more.
The Kauffman Foundation produced an excellent study last year Starting Smaller; Staying Smaller, America's Slow Leak in Job Creation detailing how new start-up businesses have become increasingly poor engines of employment.

From the report:

''Even before the Great Recession, firms were starting smaller. They were opening their doors with fewer workers than the historic norm and were relatively reluctant to expand their workforces even during good economic times. Since at least the middle of the last decade and perhaps earlier, the growth trajectories and survival rates for these businesses meant that they were contributing fewer and fewer new jobs to the  economy.
Media and academic commentators who bemoan America’s unusually slow rate of job creation after the 2007–2009 recession are missing what we believe is a longer-term trend that began earlier in the decade and might best be called a slow jobs “leak.”
In many cases, companies or individuals that once would have been hired as employees of a business now are performing the work on a temporary basis as contractors through other professional service organizations or under their own self-employment contracts. These individuals, while sometimes characterized as "entrepreneurs,” are not likely to employ others or to reach significant scale".

Some of key trends from the report:
-The number of new start-ups has declined significantly in recent years
-The percentage of the new business that are providing jobs for other people (other than the founder) is decreasing -- there's a huge rise of one-person businesses.
-The average number of employees per new business has been declining since 2002 (when 10.8 would be employed) to less than 8 now
-Fewer new businesses are surviving more than 5 years
-Of  the businesses that survive their initial years, and go on to grow their operations, job growth is now slower than the historic norm

The extinct switchboard operator
The report refrained from speculating on the causes of the job growth leaks compared to previous decades. To me, and I believe to anyone who gives it 5 minutes thought, the story seems quite obvious. The timeline completely coincides with the computer revolution, and the growing use of computers makes an increasing number of former roles redundant.

The precipitous decline in job creation of contemporary start-ups is an entirely predictable result of technological development. Advancing technology, especially IT tools in the past 2 decades, increases worker productivity, allowing companies to do more with less workers.

For example, secretaries, data entry staff and even accountants are found less and less in new companies. The notion of a human secretary at a desk could soon seem as quaint as telephone switchboard operators today.

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