By Stefan Schaible, Jochen Ditsche and Ulrich Kleipaß

Startups and scaleups are prized for their innovative prowess – they make payments easier for us with payment apps, develop novel vaccines, revolutionize business processes with new software, and so much more. But much less is known about their effect on employment, in other words, the part they play in creating and protecting jobs. A recent study by Roland Berger, the Internet Economy Foundation, the German Startup Association and Deutsche Börse examined this aspect in more detail.

Startups and scaleups create above-average numbers of jobs

The study found that there are currently around 415,000 people working in the startup scene. And startups have done much better than established companies in recent years at creating qualified and well-paid new jobs in Germany. The number of people working in Germany's largest listed companies grew by only 1.3 percent between 2018 and 2019 and actually fell 2.2 percent between 2019 and 2020 due to the pandemic, whereas employee numbers rose 55 percent between 2018 and 2020 in startups founded since 2005.

Accounting for 0.9 percent of Germany's total workforce of almost 45 million may seem a modest share for startups at present. The figure in the USA is almost 8.4 percent and in Israel around 5.4 percent by comparison. But the study found that if it proves possible to sustain and accelerate the current momentum, startups and scaleups have the potential to herald a second economic miracle in Germany.

What is more, for every new job in a new company, other jobs are created elsewhere. So rapid growth in startups and scaleups leads to an accelerated employment effect overall. Cautious estimates currently put the multiplier effect in Germany at around 1.6 million jobs. If Germany's next government is quick to set the right course with a comprehensive startup strategy soon after taking office, it is estimated that within a few years there could already be up to four million people working in innovative startups.

Homework for policymakers: Support startups, promote diversity, facilitate access to capital and ensure fair competition

That said, for startups and scaleups to contribute to the positive development of jobs in this order of magnitude, more support – and the right support – is needed. The new government should resolve to provide this support as part of a startup strategy and deliver it promptly.

The study recommends a whole package of measures to exploit the employment potential to the full. These include support for startups via incubators and accelerators from universities as well as increased collaboration with established businesses. Broadening the startup base as a whole is a key lever for a vibrant startup and scaleup landscape. In particular, the low proportion of female startup entrepreneurs and young people with a migrant background who start new businesses shows how much potential still remains untapped. For that reason, the government should set an example with its own investments and link the funding instruments it creates more closely to the diversity of the startups and scaleups it helps to finance.

Germany also needs to break new ground when it comes to facilitating access to late-stage capital. According to the study, the venture capital funds based in the country are often simply too small to give successful startups the growth capital they need to make the decisive breakthrough. One important way to enlarge and add to the number of VC funds is to involve private institutional investors such as insurers and charitable foundations. And if German and European startups and scaleups are to have a chance of standing up to international competition, then the digital world requires clear, fair and enforceable market rules. The Digital Services Act and the Digital Markets Act are good proposals from the European Commission in this regard. It is vital for these proposals to be anchored in law in 2022 without being watered down.

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