How America can create jobs

Despite its importance in American culture, the link between entrepreneurs and job creation is still only partially understood. Some analysts attribute the vast bulk of America's net job creation to start-up firms. But as vital as they are, it would be misleading to view them as the predominant source.

Modern economies are vast webs, where firms of all ages and sizes play important roles. Large firms, for example, often have the labs and know-how to be leaders in their fields. They usually provide better pay and benefits than smaller firms.

Still, firms in their first year account for about 3 in every 100 jobs at any given moment, according to recent research by the Census Bureau and the Kauffman Foundation. That's an enormous number – higher than the economy's net job creation in a typical year. Meanwhile, some of the start-ups that survive become big job creators as they aspire to be the next Facebook or FedEx.

Newer companies matter for another reason. Although plenty of innovations emerge from research labs at übercorporations like IBM, entrepreneurial firms tend to be founts of creativity. Miles Flamenbaum, for example, is helping truck fleets do more with less on vehicle maintenance. He heads a company, SOMS Technologies, that sells "microGreen" oil filters that allow cars and trucks to go up to 30,000 miles without an oil change. It's a product that's environment-friendly and can appeal during tough economic times.

"You can start saving [money] within that first 3,000 miles," says Mr. Flamenbaum, who launched the Valhalla, N.Y., firm in 2006 with the slogan: "Change your filter, not your oil."

True, innovation can lead to fewer jobs. If people are changing their oil less often, gas stations and Jiffy Lubes might have less business. Many new products marketed to US consumers are also as likely to create jobs overseas as in the US.

Still, the fact is, innovation usually leads to greater employment, not less. Someone, after all, has to staff the new oil filter business. Plus, as productivity and personal income rise as a result of innovation, consumers have more money to spend on other goods and services.

Innovation can create whole new industries, or enhance job opportunities within an industry. A quotidian example may be baby-sitting. Genevieve Thiers came up with the idea to found SitterCity, an online network to connect parents with sitters, as a college student. The year was 2001. Launching right after the dot-com bust (and as a music/English double major no less), she says she was "laughed out of the room" when she first sought start-up funds from investors.

After a bootstrap start, SitterCity has become a nationwide success. The firm currently employs 30 full-time people, with more on the way. But its bigger impact on the job market may be in home offices and high school lounges across the country. SitterCity's website now lists more than a million available caregivers, 45 percent of whom say they're now considering it as a career.

Ms. Thiers's service is essentially allowing people to create their own jobs: Her site now offers a gamut of home services, from elder and pet care to tutoring and baby-sitting.

Innovation can come in ways that benefit workers as much as consumers. Along the frothy Yellowstone River in Livingston, Mont., a business called PrintingForLess.com could also deserve the name "working for more." Providing an attractive office environment is integral to Andrew Field's recipe for print-shop success.

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