Employment Growth and Entrepreneurial Activity in Cities

Abstract

The hypothesis that increased entrepreneurial activity in the early stages of an industry's life cycle leads to higher growth rates of regional economies is tested. As a result, some of the theories explaining the variation in growth rates across local economies are examined. Also noted are the theories that explain variations in growth rates across local economies. Data were used from the Bureau of the Census that includes birth and survival and growth statistics in different types of establishments. Also, a Longitudinal Establishment and Enterprise Microdata (LEEM) file was used that tracks employment, payroll, and firm affiliation for the more than 11 million establishments that had employees during 1989-1999. The LEEM file was constructed by the Bureau of the Census from its Statistics of U.S. Business (SUSB) files. A regression model is presented along with empirical results. Findings indicate that higher rates of entrepreneurial activity were strongly association with faster growth of local economies. It is concluded that new firms are more important than the stock of small firms in a region, but the manufacturing sector appears to be an exception. Preliminary results suggest that theories of growth should involve entrepreneurship to understand better how knowledge spillovers operate.(JSD)

Keywords: Longitudinal Establishment & Enterprise Microdata (U.S. Census Bureau), U.S. Bureau of the Census, Regional economies, Startups, Economic growth, Employment rates, Firm growth, Knowledge spillovers