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

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  • David Neumark
  • Brandon Wall
  • Junfu Zhang

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 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.

Suggested Citation

  • David Neumark & Brandon Wall & Junfu Zhang, 2008. "Do Small Businesses Create More Jobs? New Evidence from the National Establishment Time Series," NBER Working Papers 13818, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:13818
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    Cited by:

    1. De-Chih Liu, 2013. "Small business job creation hypothesis in Taiwan," Quality & Quantity: International Journal of Methodology, Springer, vol. 47(3), pages 1459-1492, April.
    2. Roger M. Gomis & Sameer Khatiwada, 2017. "Firm dynamics and business cycle: What doesn't kill you makes you stronger?," IHEID Working Papers 03-2017, Economics Section, The Graduate Institute of International Studies.
    3. Majumdar Sumit K., 2015. "Competitor entry impact on jobs and wages in incumbent firms: retrospective evidence from a natural experiment," Business and Politics, De Gruyter, vol. 17(2), pages 291-326, August.
    4. Gale, William & Brown, Samuel, 2013. "Small Business, Innovation, and Tax Policy: A Review," MPRA Paper 57384, University Library of Munich, Germany.
    5. Rupasingha, Anil, 2013. "Locally owned: Do local business ownership and size matter for local economic well-being?," FRB Atlanta Community and Economic Development Discussion Paper 2013-01, Federal Reserve Bank of Atlanta.
    6. Aghion, Philippe & Akcigit, Ufuk & Howitt, Peter, 2014. "What Do We Learn From Schumpeterian Growth Theory?," Handbook of Economic Growth,in: Handbook of Economic Growth, edition 1, volume 2, chapter 0, pages 515-563 Elsevier.
    7. Marcus H. Böhme & Sarah Kups, 2017. "The economic effects of labour immigration in developing countries: A literature review," OECD Development Centre Working Papers 335, OECD Publishing.
    8. Fougère, D. & Golfier, C. & Horny, G. & Kremp, E., 2013. "What has been the impact of the 2008 crisis on firms’ default? (in French)," Working papers 463, Banque de France.
    9. repec:ldr:wpaper:92 is not listed on IDEAS
    10. Kameliia Petrova, 2012. "Sources of Employment Growth in the North Country," New York Economic Review, New York State Economics Association (NYSEA), vol. 43(1), pages 46-69.
    11. Haunschild, Ljuba & May-Strobl, Eva, 2009. "Arbeitsplatzdynamik und nachhaltige Beschäftigungswirkungen in kleinen und mittleren Unternehmen: Eine empirische Untersuchung auf Basis des Umsatzsteuerpanels für die Jahre 2001 bis 2005," Working Papers 06/09, Institut für Mittelstandsforschung (IfM) Bonn.
    12. Andrew Kerr & Martin Wittenberg & Jairo Arrow, 2014. "Job Creation and Destruction in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 82(1), pages 1-18, March.
    13. Magnus Lofstrom, 2013. "Does self-employment increase the economic well-being of low-skilled workers?," Small Business Economics, Springer, vol. 40(4), pages 933-952, May.
    14. Roxana Gutiérrez-Romero, 2012. "Determinants of Spanish Firms' Life Cycle and Job Creation: A Pseudo-Panel Approach," Working Papers wpdea1209, Department of Applied Economics at Universitat Autonoma of Barcelona.
    15. World Bank, 2010. "Scaling-Up SME Access to Financial Services," World Bank Other Operational Studies 12515, The World Bank.
    16. Luz Adriana Flórez & Leonardo Morales Z & Daniel Medina & José Lobo C, 2017. "Labour flows across firm´s size, economic sectors and wages: evidence from employer-employee linked panel," Borradores de Economia 1013, Banco de la Republica de Colombia.
    17. William Gale & Samuel Brown, 2013. "Small Business, Innovation, and Tax Policy: A Review," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(4), pages 871-892, December.
    18. Bender, Keith A. & Roche, Kristen, 2013. "Educational mismatch and self-employment," Economics of Education Review, Elsevier, vol. 34(C), pages 85-95.
    19. Nikolaj Malchow-Møller & Bertel Schjerning & Anders Sørensen, 2011. "Entrepreneurship, job creation and wage growth," Small Business Economics, Springer, vol. 36(1), pages 15-32, January.
    20. Marco Corsino & Roberto Gabriele & Sandro Trento, 2010. "Job flows in Italian SMEs: a longitudinal analysis of growth, size and age," DISA Working Papers 1008, Department of Computer and Management Sciences, University of Trento, Italy, revised 22 Dec 2010.
    21. Ralf R. Meisenzahl, 2016. "Can Financing Constraints Explain the Evolution of the Firm Size Distribution?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 48(2), pages 123-147, March.
    22. Iwona Markowicz, 2015. "Duration Analysis of Firms – Cohort Tables and Hazard Function," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 5(11), pages 36-47, November.
    23. Corseuil, Carlos Henrique & Moura, Rodrigo Leandro de, 2010. "The effects of tax incentives for small firms on employment levels," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 701, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    24. Bögenhold, Dieter & Fachinger, Uwe, 2012. "Unternehmertum: Unterschiedliche Facetten selbstständiger Berufstätigkeit
      [Entrepreneurship: Diverse aspects of self-employment]
      ," MPRA Paper 51459, University Library of Munich, Germany.
    25. Borsi, Balázs & Dőry, Tibor, 2015. "A vállalkozóképzés nemzetközi trendjei és a vállalkozói készségek egyetemi fejlesztése. A Széchenyi István Egyetem tudásvállalkozás-fejlesztési programjának tapasztalatai
      [International trends of e
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 835-852.

    More about this item

    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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