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Do Small Businesses Create More Jobs? New Evidence for the United States from the National Establishment Time Series

Author

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  • Neumark, David

    () (University of California, Irvine)

  • Wall, Brandon

    () (Stanford University)

  • Zhang, Junfu

    () (Clark University)

Abstract

We use a new database, the National Establishment Time Series (NETS), to revisit the debate about the role of small businesses in job creation. Birch (e.g., 1987) argued that small firms are the most important source of job creation in the U.S. economy. But Davis et al. (1996a) argued that this conclusion was flawed, and based on improved methods and using data for the manufacturing sector, they concluded that there was no relationship between establishment size and net job creation. Using the NETS data, we examine evidence for the overall economy, as well as for different sectors. The results indicate that small firms and small establishments create more jobs, on net, although the difference is much smaller than what is suggested by Birch's methods. Moreover, in the recent period we study, a negative relationship between establishment size and job creation holds for both the manufacturing and services sectors.

Suggested Citation

  • Neumark, David & Wall, Brandon & Zhang, Junfu, 2008. "Do Small Businesses Create More Jobs? New Evidence for the United States from the National Establishment Time Series," IZA Discussion Papers 3888, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp3888
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    Keywords

    small businesses; job destruction; job creation;

    JEL classification:

    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L53 - Industrial Organization - - Regulation and Industrial Policy - - - Enterprise Policy

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