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

36 Pages Posted: 15 Feb 2008 Last revised: 5 Oct 2022

See all articles by David Neumark

David Neumark

University of California, Irvine - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Brandon Wall

Public Policy Institute of California; Stanford University

Junfu Zhang

Clark University; IZA Institute of Labor Economics

Date Written: February 2008

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

Neumark, David and Wall, Brandon and Zhang, Junfu, Do Small Businesses Create More Jobs? New Evidence from the National Establishment Time Series (February 2008). NBER Working Paper No. w13818, Available at SSRN: https://ssrn.com/abstract=1093656

David Neumark (Contact Author)

University of California, Irvine - Department of Economics ( email )

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Brandon Wall

Public Policy Institute of California ( email )

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Stanford University ( email )

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Junfu Zhang

Clark University ( email )

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IZA Institute of Labor Economics

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Germany

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