The number of technology-based start-ups surged 47 percent in the last decade. These firms still account for a relatively small share of all businesses, but they have an outsized impact on economic growth, because they provide better-paying, longer-lasting jobs than other start-ups, and they contribute more to innovation, productivity, and competitiveness.
Technology-based start-ups have long been an important driver of America’s economic growth and competitiveness. But while these firms provide outsized contributions to employment, innovation, exports, and productivity growth, many policymakers focus more broadly on helping all business start-ups without regard to type. Such a broad-based focus risks reducing overall economic growth for three key reasons. First, most owners of new non-tech-based firms have no intention of growing beyond just a few employees. Second, small, non-tech-based firms on average have much lower productivity and wage levels than technology-based start-ups. And third, most non-tech start-ups are in local-serving industries (e.g., retail) and as such create few or no net new jobs. As such, the focus of entrepreneurship policy should be squarely on spurring more technology-based start-ups.
Over the last few years a common narrative has emerged that new business formation is down and that this has been a significant contributing factor to the recent underperformance of the U.S. economy. There is a parallel narrative which holds that large technology firms are crushing technology-based start-ups, using their power to enter markets that start-ups otherwise would occupy. Therefore, a critical question for the future of the U.S. economy is the current state of technology-based start-ups. ITIF attempted to answer this question by examining data on more than 5 million firms in 10 technology-based industries from 2007 to 2016. As it turns out, neither claim is true. Read more here.