U.S. startups aren't doing so hot, according to recent analyses.
Despite the general perception that the U.S. tech economy is buzzing, figures from the U.S. Department of Labor show that jobs at new companies grew a measly 1 percent during the first quarter of 2016. That's the slowest rate of growth since 1992.
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The slowdown in start-up employment is part of a long-term trend. The economic recovery since 2010 has generally not included an uptick in job growth for new companies. The rate of such growth has stayed below 1.3 percent during the recovery from the financial crash in 2008. Instead, most of the job growth has come from older companies boosting employment.
The slow growth in startup employment portends long-term problems for the economy, some analysts suggest, despite the relatively low overall unemployment rate.
When workers are too dependent on jobs from a small number of companies, there is a chance that the economy is getting less competitive overall, and that's a big problem.
A lack of competition means that wages are more likely to remain flat. Not just because there are fewer new companies vying for employees by offering higher wages, but because established companies will in some cases collude to avoid getting into bidding wars over workers.
While it is illegal for companies to enter into agreements not to try to recruit each other's employees, there is strong evidence that such agreements are taking place informally between major corporations. The most prominent example involves a number of the biggest Silicon Valley tech firms, including Apple, Google and Intel, which have settled a class action lawsuit in response to evidence that their leaders agreed not to try to make offers to each others' employees.
But in the absence of agreements between companies that are clearly illegal, many companies are preventing employees from taking offers from competitors by making them sign noncompete contracts that bar them from going to a competing company for a certain period of time after they leave the company. Roughly a fifth of U.S. workers have signed such a clause, according to recent research on the subject.
There are political solutions to such issues, some of which have been hinted at by the Obama administration, which recently called on states to develop policies aimed at discouraging or barring what it views as the most abusive noncompete clauses. There is greater tolerance of such clauses for highly skilled workers or corporate leaders, but there are few who would argue that making an entry-level employee in the service sector sign such a contract has any effect but reducing his ability to negotiate a pay increase.
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