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Job creation linked to company age, not size

Faculty Associate John Haltiwanger's paper with two Census Bureau economists challenges conventional wisdom

A paper by John Haltiwanger and colleagues at the U.S. Census Bureau examines the conventional wisdom that small jobs create the most jobs in America. As Wall Street Journal  columnist Carl Bialik points out, what constitutes "small" can be a controversial question. The authors themselves point out that there’s been a long, sometimes heated, debate on the role of firm size in employment growth. Despite skepticism in the academic community, the notion that growth is negatively related to firm size remains appealing to policymakers and small business advocates. The widespread and repeated claim from this community is that most new jobs are created by small businesses. Using data from the Census Bureau Business Dynamics Statistics and Longitudinal Business Database, the authors explored the many issues regarding the role of firm size and growth that have been at the core of this ongoing debate (such as the role of regression to the mean). They found that the relationship between firm size and employment growth is sensitive to these issues. However, their main finding wass that once they controlled for firm age there is no systematic relationship between firm size and growth. The findings highlight the important role of business startups and young businesses in U.S. job creation. Business startups contribute substantially to both gross and net job creation. In addition, they found an “up or out” dynamic of young firms. These findings imply that it is critical to control for and understand the role of firm age in explaining U.S. job creation, the authors said.

Haltiwanger, J., Jarmin, R.S., Miranda, J (2011). Who Creates Jobs ? Small vs. Large vs. Young (PDF)

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