Small business and job creation: Dissecting the myth and reassessing the facts
Rent the article at a discountRent now
* Final gross prices may vary according to local VAT.Get Access
This paper investigates how job creation and destruction behavior varies by employer size in the U.S. manufacturing sector during the period 1972 to 1988. The paper also evaluates the empirical basis for conventional claims about the job-creating prowess of small businesses. The chief findings and conclusions fall into five categories:
Conventional wisdom about the job-creating prowess of small businesses rests on misleading interpretations of the data.
Many previous studies of the job creation process rely upon data that are not suitable for drawing inferences about the relationship between employer size and job creation.
Large plants and firms account for most newly-created and newly-destroyed manufacturing jobs.
Survival rates for new and existing manufacturing jobs increase sharply with employer size.
Smaller manufacturing firms and plants exhibit sharply higher gross rates of job creation but not higher net rates.
- Acs, Zoltan and David Audretsch, 1988, ‘Innovation in Large and Small Firms: An Empirical Analysis’, American Economic Review 78 (September), 678–690.
- Aldrich, Howard, Arne, Kalleberg, Peter, Marsden and James Cassell, 1988, ‘In Pursuit of Evidence: Five Sampling Procedures for Locating New Businesses’, Journal of Business Venturing 4, 367–386.
- Armington, Catherine and Marjorie Odle, 1982a, ‘Small Business — How Many Jobs?’, Brookings Review (Winter).
- Armington, Catherine and Marjorie Odle, 1982b, ‘Sources of Employment Growth, 1978–80’, unpublished report, The Brookings Institution, Washington, D.C.
- Birch, David L., 1979, The Job Generation Process, unpublished report, MIT Program on Neighborhood and Regional Change.
- Birch, David L., 1987 Job Creation in America: How Our Smallest Companies Put the Most People to Work, New York: The Free Press.
- Birch, David and Susan MacCracken, 1983, ‘The Small Business Share of Job Creation: Lessons Learned from the Use of a Longitudinal File’, unpublished report, MIT Program on Neighborhood and Regional Change.
- Birley, Sue, 1984, ‘Find the New Firm’, Proceedings of the Academy of Management Meetings.
- Brock, William A. and David S. Evans, 1986, The Economics of Small Business: Their Role and Regulation in the U.S. Economy, New York: Holmes and Meier.
- Brown, Charles and James Medoff, 1989, ‘The Employer Size Wage Effect’, Journal of Political Economy (October), 1027–1059.
- Brown, Charles, James, Hamilton and James Medoff, 1990, Employers Large and Small, Cambridge, Massachusetts: Harvard University Press.
- Davis, Steven J. and John Haltiwanger, 1991, ‘Wage Dispersion between and within U.S. Manufacturing Plants, 1963–86’, Brookings Papers on Economic Activity: Microeconomics, 115–200.
- Davis, Steven J. and John Haltiwanger, 1992, ‘Employer Size and the Wage Structure in U.S. Manufacturing’, mimeograph, University of Chicago.
- Davis, Steve, John Haltiwanger, and Scott Schuh, 1990, ‘Published Versus Sample Statistics from the ASM: Implications for the LRD’, Proceedings of the American Statistical Association, Business and Economics Statistics Section.
- Davis, Steve, John Haltiwanger, and Scott Schuh, 1995, Job Creation and Destruction, MIT Press (forthcoming).
- Dentzer, Susan, 1993, ‘Doing the Small-Business Shuffle’, U.S. News and World Report (August 16), 49.
- Evans, David, 1987, ‘The Relationship between Firm Growth, Size and Age: Estimates for 100 Manufacturing Industries’, Journal of Industrial Economics XV, 567–581.
- Friedman, Milton, 1992, ‘Do Old Fallacies Ever Die?’, Journal of Economic Literature 30(4), 2139–2132.
- Gaston, Robert J., 1989, ‘The Scale of Informal Capital Markets’, Small Business Economics 1(3), 223–230.
- Gertler, Mark and Simon Gilchrist, 1992, ‘Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms’, working paper, New York University.
- Hale, David, 1993, ‘Small Business, Tax Plan's Victim’, Wall Street Journal (July 30), A.8.
- Hansen, John A., 1992, ‘Innovation, Firm Size, and Firm Age’, Small Business Economics 4(1), 37–44.
- Howland, Marie, 1988, Plant Closings and Worker Displacements: The Regional Issues, W.E. Upjohn Institute for Employment Research: Kalamazoo, Michigan.
- Kashyap, Anil and Jeremy Stein, 1992, ‘Monetary Policy and Bank Lending’, mimeograph, University of Chicago.
- Kinsley, Michael, 1993, ‘Small Isn't Beautiful’, The New Republic (September 13), 6.
- Leonard, Jonathan, 1986, ‘On the Size Distribution of Employment and Establishments’, NBER working paper 1951.
- Lilien, David, 1980, ‘The Cyclical Pattern of Temporary Layoffs in United States Manufacturing’, Review of Economics and Statistics, CXII, 24–31.
- Marshall, Jonahan, 1993, ‘Dispelling a Small-Business Myth’, San Francisco Chronicle (March 29), D1.
- Meyers, Henry F., 1993, ‘The Outlook’, Wall Street Journal (March 8), 1.
- Quah, Danny, 1993, ‘Galton's Fallacy and Tests of the Convergence Hypothesis’, Londond School of Economics Discussion Paper EM/93/265.
- Roach, Stephen, 1993, ‘The New Majority: White-Collar Jobless’, New York Times (March 14), section 4, page 17.
- Siebert, Muriel, 1992, ‘Hire Workers. Get a Tax Credit’, New York Times (January 6), A21.
- Silk, Leonard, 1986, ‘Quiet Shapers of History’, New York Times, (April 9), D2.
- U.S. Bureau of the Census, 1988, County Business Patterns, U.S. Summary Statistics, Volume I, Washington, D.C.: U.S. Governemnt Printing Office.
- U.S. Bureau of the Census, 1987, Enterprise Statistics, Washington, D.C.: U.S. Government Printing Office.
- U.S. Small Business Administration, 1983, 1987, 1988, 1991, The State of Small Business: A Report of the President, Washington, D.C.: U.S. Government Printing Office.
- Walker, David A., 1989, ‘Financing the Small Firm’, Small Business Economics 1(4), 285–296.
- Wessel, David and Buck Brown, 1988, ‘The Hyping of Small-Firm Job Growth’, Wall Street Journal (November 8), 1.
- Zagorin, Adam, 1993, ‘How the Small Business Owner Gets Clobbered’, Time (July 12), 32.
- Small business and job creation: Dissecting the myth and reassessing the facts
Small Business Economics
Volume 8, Issue 4 , pp 297-315
- Cover Date
- Print ISSN
- Online ISSN
- Kluwer Academic Publishers
- Additional Links
- Industry Sectors