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

  • David Neumark
  • Brandon Wall
  • Junfu Zhang

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 establishments and small firms create more jobs, on net, although the difference is much smaller than what is suggested by Birch's methods. However, the negative relationship between establishment size and job creation is much less clear for the manufacturing sector, which may explain some of the earlier findings contradicting Birch's conclusions.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13818.

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Date of creation: Feb 2008
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Handle: RePEc:nbr:nberwo:13818
Note: IO LS
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  1. David Neumark & Junfu Zhang & Brandon Wall, 2005. "Employment Dynamics and Business Relocation: New Evidence from the National Establishment Time Series," PPIC Working Papers 2005.11, Public Policy Institute of California.
  2. José Fariñas & Lourdes Moreno, 2000. "Firms' Growth, Size and Age: A Nonparametric Approach," Review of Industrial Organization, Springer, vol. 17(3), pages 249-265, November.
  3. Jed Kolko & David Neumark, 2008. "Changes In The Location Of Employment And Ownership: Evidence From California," Journal of Regional Science, Wiley Blackwell, vol. 48(4), pages 717-744.
  4. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "The Growth and Failure of U.S. Manufacturing Plants," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 671-98, November.
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  13. Fotini Voulgaris & Theodore Papadogonas & George Agiomirgianakis, 2005. "Job Creation and Job Destruction in Greek Manufacturing," Review of Development Economics, Wiley Blackwell, vol. 9(2), pages 289-301, 05.
  14. Roy Thurik & Enrico Santarelli & David Audretsch & Luuk Klomp, 2002. "Gibrat's Law: Are the Services Different?," Scales Research Reports H200201, EIM Business and Policy Research.
  15. Jeffrey D. Sachs & Howard J. Shatz, 1994. "Trade and Jobs in Manufacturing," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 1-84.
  16. 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, June.
  17. Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 583-606, June.
  18. Matthew Barnes & Jonathan Haskel, 2002. "Job Creation, Job Destruction and the Contribution of Small Businesses: Evidence for UK Manufacturing," Working Papers 461, Queen Mary University of London, School of Economics and Finance.
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