Small Business Economics

, Volume 8, Issue 4, pp 297-315

First online:

Small business and job creation: Dissecting the myth and reassessing the facts

  • Steven J. DavisAffiliated withNational Bureau of Economic Research, University of Chicago
  • , John HaltiwangerAffiliated withNational Bureau of Economic Research, University of Maryland
  • , Scott SchuhAffiliated withFederal Reserve Board

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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:
  1. (1)

    Conventional wisdom about the job-creating prowess of small businesses rests on misleading interpretations of the data.

  2. (2)

    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.

  3. (3)

    Large plants and firms account for most newly-created and newly-destroyed manufacturing jobs.

  4. (4)

    Survival rates for new and existing manufacturing jobs increase sharply with employer size.

  5. (5)

    Smaller manufacturing firms and plants exhibit sharply higher gross rates of job creation but not higher net rates.