Do Small Businesses Create More Jobs? New Evidence from the National Establishment Time Series
University of California, Irvine - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)
Public Policy Institute of California; Stanford University
Clark University; Institute for the Study of Labor (IZA)
NBER Working Paper No. w13818
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.
Number of Pages in PDF File: 36working papers series
Date posted: February 15, 2008
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