New report shows huge drop in startup jobs (but don’t just think tech)

A new study from the conservative nonprofit think tank Hudson Institute shows a big drop in the number of jobs created by startups — defined as companies less than a year old — over the last two years. What’s going on?

“The Collapse of Startups in Job Creation” (PDF) by the Hudson Institute’s Tim Kane says startup job creation has collapsed under the Obama administration. The paper, based on the most recent data (Q4 2011) from the Bureau of Labor Statistics, says “job creation at new firms was at an all-time low in 2009 of 2.8 million, then fell again a year later by 250,000 jobs” to 2.34 million. “Quarterly figures for startup job creation have continued to weaken,” Kane writes, and “the rate of startup jobs during 2010 and 2011, years that were technically in recovery, are the lowest on record.”

Kane blames the drop on increased business regulation under a Democratic administration (though startup job creation was higher under Clinton than under George W. Bush) and cites the Affordable Care Act as “a sweeping alteration of the regulatory environment that directly changes how employers engage their workforces.”

But is there a less politicized answer to what is going on? Reuters’ Felix Salmon notes that the number of jobs created by small businesses overall has increased since 2010, so what is the particular problem with startups? It’s important to remember they’re not all in tech:

The only thing I can think of here is that for all that we think of startups as being largely high-tech things, in reality a huge number of them are in the construction industry, in one way or another. In a word, subcontractors. And no one’s starting new granite-countertop installation companies right now. But still, startups are a decent proxy for the dynamism of an economy. And these charts don’t bode at all well, on that front.

In an interview with the Huffington Post, the author’s report, Tim Kane, also blames outsourcing:

The venture capital industry expects every startup now to have an international strategy. Not just for sales, but for putting their team together. It’s just too easy for startup companies now to outsource some of their work as efficiently as they can, and if that means hiring people who aren’t Americans and whom they don’t have to pay taxes on and provide health benefits to, than we’re feeling the effects of that as a country.

The Obama administration is taking steps to address the problem. The Startup America Partnership, led by AOL (s AOL) cofounder Steve Case, aims to help young companies across the country grow and gain access to capital. Case is a strong proponent of the Startup Act 2.0, which builds on the JOBS Act that Congress passed in March and aims to reform immigration law for highly skilled immigrants. “By fixing a broken high-skilled immigration system and encouraging the world’s most talented innovators to contribute here in the United States,” Case wrote in the Atlantic this week, “we will once again secure our lead as the world’s most entrepreneurial economy.”