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Small Business and Job Creation: Dissecting the Myth and Reassessing the Facts

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  • Davis, Steven J
  • Haltiwanger, John
  • Schuh, Scott

Abstract

This paper investigates how job creation and destruction behavior varies by employer size in the U.S. manufacturing sector during the period 1972 to 1988. The paper also evaluates the empirical basis for conventional claims about the job-creating prowess of small businesses. The chief findings and conclusions fall into five categories: (1) Conventional wisdom about the job-creating prowess of small business rests on misleading interpretations of the data. (2) Many previous studies of the job creation process rely upon data that are not suitable for drawing inferences about the relationship between employer size and job creation. (3) Large plants and firms account for most newly-created and newly-destroyed manufacturing jobs. (4) Survival rates for new and existing manufacturing jobs increase sharply with employer size. Smaller manufacturing firms and plants exhibit sharply higher gross rates of job creation but not higher net rates. Copyright 1996 by Kluwer Academic Publishers

Suggested Citation

  • Davis, Steven J & Haltiwanger, John & Schuh, Scott, 1996. "Small Business and Job Creation: Dissecting the Myth and Reassessing the Facts," Small Business Economics, Springer, vol. 8(4), pages 297-315, August.
    • Handle: RePEc:kap:sbusec:v:8:y:1996:i:4:p:297-315
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    References listed on IDEAS

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    1. Mark Gertler & Simon Gilchrist, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 309-340.
    2. Evans, David S, 1987. "The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 567-581, June.
    3. Acs, Zoltan J & Audretsch, David B, 1988. "Innovation in Large and Small Firms: An Empirical Analysis," American Economic Review, American Economic Association, vol. 78(4), pages 678-690, September.
    4. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, December.
    5. Anil K. Kashyap & Jeremy C. Stein, 1994. "Monetary Policy and Bank Lending," NBER Chapters, in: Monetary Policy, pages 221-261, National Bureau of Economic Research, Inc.
    6. Lilien, David M, 1980. "The Cyclical Pattern of Temporary Layoffs in United States Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 62(1), pages 24-31, February.
    7. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-1059, October.
    8. Friedman, Milton, 1992. "Do Old Fallacies Ever Die?," Journal of Economic Literature, American Economic Association, vol. 30(4), pages 2129-2132, December.
    9. Steve J. Davis & John Haltiwanger, 1991. "Wage Dispersion Between and Within U.S. Manufacturing Plants, 1963-1986," NBER Working Papers 3722, National Bureau of Economic Research, Inc.
    10. Quah, D., 1990. "Galton'S Fallacy And The Tests Of The Convergence Hypothesis," Working papers 552, Massachusetts Institute of Technology (MIT), Department of Economics.
    11. repec:adr:anecst:y:1996:i:41-42:p:14 is not listed on IDEAS
    12. John Haltiwanger & Steven J Davis & Scott Schuh, 1991. "Published Versus Sample Statistics From The ASM: Implications For The LRD," Working Papers 91-1, Center for Economic Studies, U.S. Census Bureau.
    13. Quah, Danny, 1993. " Galton's Fallacy and Tests of the Convergence Hypothesis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 427-443, December.
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    More about this item

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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