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

32 Pages Posted: 22 Dec 2008

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

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.

Keywords: job creation, job destruction, small businesses

JEL Classification: J20, L25, L53

Suggested Citation

Neumark, David and Wall, Brandon and Zhang, Junfu, Do Small Businesses Create More Jobs? New Evidence for the United States from the National Establishment Time Series. IZA Discussion Paper No. 3888, Available at SSRN: https://ssrn.com/abstract=1318847 or http://dx.doi.org/10.2139/ssrn.1318847

David Neumark (Contact Author)

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

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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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Brandon Wall

Public Policy Institute of California ( email )

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United States

Stanford University ( email )

Stanford, CA 94305
United States

Junfu Zhang

Clark University ( email )

950 Main Street
Worcester, MA 01610
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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