Richmond Fed, Report: Why Are Startups Important for the Economy? 

“Startups make up a relatively small fraction of the total stock of firms, but there is a tremendous amount of heterogeneity among them, characterized by their “up-or-out” dynamics: Only a handful of startups are fortunate enough to reap the benefits of their innovations, and their success drives aggregate outcomes such as employment, productivity and economic growth. However, many others fail in the process, with most startups not staying in business for more than five years.”

“The prevalence of startups in the U.S. economy has been falling over the past four decades. In particular, the startup rate has declined substantially. Yet despite the economic turmoil associated with the COVID-19 recession, the number of EIN applications surged during the pandemic. In turn, this has been followed by a substantial amount of establishment openings and job creation, presenting a clear break from the secular decline in business dynamism.”

“Several important questions arise, though. Is the pandemic surge in businesses the start of a new era in U.S. business dynamism? Moreover, is this spike the sign of a burst in innovation leading to economic growth? Or is it only temporary and a mere restructuring of the economy to accommodate the new lifestyle of working from home? Researchers are eagerly waiting for future data to answer these questions.”