Sept. 3 (Bloomberg) -- Success stories like Trevor Lynn’s or Xiao Wei Chen’s are going to get rarer as older businesses overshadow start-ups in U.S. job creation.
Lynn, 23, is chief marketing officer at Social Tables in Washington. He joined the hospitality software startup in August 2012, and now manages a team of 12. Chen, 27, is chief operating officer at Homejoy in San Francisco. He started at the cleaning-service company last year as its third hire.
Millennials, those born after 1980, may find it more difficult to quickly scale career ladders as new businesses, which tend to employ more young workers, become a smaller force in the labor market. The share of jobs at older companies, where advancement for those just starting out tends to be harder to come by, has been growing.
“Rapid progress for new and young job holders is much rarer in long-established firms,” said Gary Burtless, an economist at the Brookings Institution in Washington. “Young people benefit when there are lots of new firms where they can get positions quite easily, and in a new firm, you don’t have to worry about the hierarchy -- there’s no old geezers.”
New businesses like Social Tables and Homejoy tend to employ more young workers, according to an October 2013 Federal Reserve Board study. People between 25 and 34 years old made up 28.7 percent of new hires at 1- to 5-year-old companies from 1992 through 2004, compared with 25.3 percent at firms that had been around for more than 20 years.
Workers who jump into young, up-and-coming ventures may benefit from more rapid career progress because they can grow with the business.
“I don’t think there is a better way to learn, or get responsibility,” said Lynn, speaking from an office packed with millennials plugging away on Apple Inc. laptops. The American University graduate turned down a job as a financial analyst two years ago to join Social Tables. He was promoted and given a raise earlier this year.
Young employees may be more risk-tolerant and thus a better fit for chancy startups, said Paige Ouimet, an assistant professor at the University of North Carolina at Chapel Hill and one of the co-authors of the Fed study. Workers who are fresh out of college may also have the up-to-date skills fledgling companies need.
While business formation has rebounded from a recession-induced plunge, the number of jobs borne by such entrepreneurship hasn’t kept up.
About 218,000 private establishments were created per quarter in 2013, back to decade-high levels seen in 2006, Bureau of Labor Statistics data show. The figures discounted first-quarter data, when a classification change caused an artificial blip.
Yet the 795,000 workers that the new establishments added to payrolls in the last three months of 2013 contrasted with almost 1 million a quarter from 2003 to 2006, according to Labor Department data. The number of jobs per new business fell to 3.6 in 2013, again excluding data from the first quarter, down from 4.3 in all of 2007 and almost 5 in 2003.
Adding to the bad news for people just starting out, the share of private-sector workers at older companies has risen over the past two decades, a July Brookings report by Robert Litan and Ian Hathaway found. Firms more than 16 years old employed 72 percent of all workers in 2011, up from 60 percent in 1992, according to the study. They also made up 34 percent of all businesses that year, up from 23 percent in 1992.
Workers who start out at a new company aren’t guaranteed success. Young businesses often flop. About 50 percent of the original jobs generated by new businesses were lost within five years due to closures, based on a study published in an American Economic Association journal this year.
“Entrepreneurship is really hard, there’s a lot of failure, all we hear about are the successes,” said Hathaway, founder and managing director of Ennsyte, an economics and research consultancy in San Francisco.
What’s more, many startups aren’t high-growth: Only about one-third are created with the purpose of bringing a specific service or good to market, while most are crafted so the founder could have more job flexibility or be in charge, based on research by University of Chicago economist Erik Hurst.
A lack of labor-market dynamism and growing perceptions that there are fewer opportunities for advancement may explain why people are holding on to their jobs longer. Employee tenure reached 4.6 years in January 2012 from 3.7 a decade earlier, according to figures from the Labor Department. Demographic changes may be driving part of the increase -- older workers tend to stay in jobs longer -- yet 25 to 34 year olds also saw their length of time at a job climb to 3.2 years from 2.7 years over the same period.
“We’re in a more sluggish period where the United States economy has lower productivity growth, lower economic growth, lower job creation,” said John Haltiwanger, an economist at the University of Maryland at College Park, who presented a paper on the subject of job market fluidity at this year’s Kansas City Fed gathering of central bankers at Jackson Hole, Wyoming. “That’s not good for any of us, but it’s especially not good for those who are entering.”
Economists haven’t studied whether starting one’s career at a newly formed company leads to faster progression, Ouimet and Burtless said. The link between upward job mobility and new businesses “is based solely on anecdotal evidence and logic,” Burtless said in an e-mail.
Homejoy’s Chen is one such anecdote. He started his career as a business analyst at McKinsey & Co. in Beijing before working in business development at Microsoft Corp. for two years.
“When I joined Homejoy, it was such a young company that there were so many opportunities,” he said.
“I’ve seen it over and over -- lots of young people accelerate their career because they happen to be at a young company that’s doing very well,” said Dan Finnigan, chief executive officer at Jobvite Inc., a San Mateo, California-based social recruitment company.
“If you do get one that hits and grows fast -- my God, yeah -- you will get more experiences and you will get more responsibilities,” Finnigan said. “And you’ll get it faster than you would at a bigger company, without a doubt.”
For employers such as Jon Stein, chief executive officer of New York-based automated investment service Betterment LLC, the type of experience workers receive from startups is attractive even if the businesses aren’t successful or quick to expand.
“I’ll almost always opt for someone who has experience at a young company over someone who has experience at a big company because you learn more, faster,” Stein said. “You’re going to be responsible for more.”
Social Tables has doubled in size since January and continues to expand, leaving Lynn with more responsibility.
At the company’s newly-leased headquarters in Washington’s Chinatown area, he points to a paper storage area that’s been converted into additional office space for desks. Business goals written on neon Post-it notes hang on a wall, and a poster lays out a road map for new innovations.
“If your company is stagnant, your people are definitely stagnant,” Lynn said. “One of our company’s mantras is that you have to grow as fast as the company.”
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