Working Paper: NBER ID: w13818
Authors: David Neumark; Brandon Wall; Junfu Zhang
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.
Keywords: small businesses; job creation; National Establishment Time Series
JEL Codes: J20; L25; L53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Establishment Size (L25) | Net Job Creation (J23) |
| Establishment Size < 250 employees (L25) | Job Creation (J23) |
| Establishment Size > 250 employees (L25) | Job Loss (J63) |
| Manufacturing Sector (L60) | Less Clear Negative Relationship with Job Creation (J23) |
| Small Businesses (M13) | Substantial Share of Job Creation and Destruction (J63) |
| Establishment Size (L25) | Negative Correlation with Net Job Creation (J63) |