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Who Creates Jobs? Small vs. Large vs. Young

August 2010

Working Paper Number:

CES-10-17

Abstract

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, we explore 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). We find that the relationship between firm size and employment growth is sensitive to these issues. However, our main finding is that once we control for firm age there is no systematic relationship between firm size and growth. Our 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, we find 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.

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estimating, quarterly, analyst, growth, employ, acquisition, startup, entrepreneurship, longitudinal, larger firms, firm growth, younger firms, firms grow, small firms, job growth, employment growth, regression, growth firms, firm dynamics, startup firms, firms employment, firms age, regress, firms young

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Internal Revenue Service, Standard Industrial Classification, Bureau of Labor Statistics, Small Business Administration, Center for Economic Studies, County Business Patterns, Longitudinal Business Database, Retirement History Survey, Department of Homeland Security, North American Industry Classification System, Census Bureau Business Register, Quarterly Census of Employment and Wages, Kauffman Foundation, Business Dynamics Statistics, Census Bureau Business Dynamics Statistics

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