This pape reports estimates of the effects of the Small Business Administration (SBA) 7(a) and 504 loan programs on employment. The database links a complete list of all SBA loans in these programs to universal data on all employers in the U.S. economy from 1976 to 2010. Our method is to estimate firm fixed effect regressions using matched control groups for the SBA loan recipients we have constructed by matching exactly on firm age, industry, year, and pre-loan size, plus kernel-based matching on propensity scores estimated as a function of four years of employment history and other variables. The results imply positive average effects on loan recipient employment of about 25 percent or 3 jobs at the mean. Including loan amount, we find little or no impact of loan receipt per se, but an increase of about 5.4 jobs for each million dollars of loans. When focusing on loan recipients and control firms located in high-growth counties (average growth of 22 percent), places where most small firms should have excellent growth potential, we find similar effects, implying that the estimates are not driven by differential demand conditions across firms. Results are also similar regardless of distance of control from recipient firms, suggesting only a very small role for displacement effects. In all these cases, the results pass a "pre-program" specification test, where controls and treated firms look similar in the pre-loan period. Other specifications, such as those using only matching or only regression imply somewhat higher effects, but they fail the pre-program test.
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Job Creation, Small vs. Large vs. Young, and the SBA
September 2015
Working Paper Number:
CES-15-24
Analyzing a list of all Small Business Administration (SBA) loans in 1991 to 2009 linked with annual information on all U.S. employers from 1976 to 2012, we apply detailed matching and regression methods to estimate the variation in SBA loan effects on job creation and firm survival across firm age and size groups. The estimated number of jobs created per million dollars of loans within the small business sector generally increases with size and decreases in age. The results suggest that the growth of small, mature firms is least financially constrained, and that faster growing firms experience the greatest financial constraints to growth. The estimated association between survival and loan amount is larger for younger and smaller firms facing the 'valley of death.'
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The Impacts of Opportunity Zones on Zone Residents
June 2021
Working Paper Number:
CES-21-12
Created by the Tax Cuts and Jobs Act in 2017, the Opportunity Zone program was designed to encourage investment in distressed communities across the U.S. We examine the early impacts of the Opportunity Zone program on residents of targeted areas. We leverage restricted-access microdata from the American Community Survey and employ difference-in-differences and matching approaches to estimate causal reduced-form effects of the program. Our results point to modest, if any, positive effects of the Opportunity Zone program on the employment, earnings, or poverty of zone residents.
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Statistics on the Small Business Administration's Scale-Up America Program
April 2019
Working Paper Number:
CES-19-11
This paper attempts to quantify the difference in performance, of 'treated' (program participant) and 'non-treated' (non-participant) firms in SBA's Scale-Up initiative. I combine data from the SBA with administrative data housed at Census using a combination of numeric and name and address matching techniques. My results show that after controlling for available observable characteristics, a positive correlation exists between participation in the Scale-Up initiative and firm growth. However, publicly available survey results have shown that entrepreneurs have a variety of goals in-mind when they start their businesses. Two prominent, and potentially contradictory ones are work-life balance and greater income. That means that not all firms may want to grow and I am unable to completely control for owner motivations. Finally, I do not find a statistically significant relationship between participation in Scale-Up and firm survival once other business characteristics are accounted for.
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Combining Rules and Discretion in Economic Development Policy: Evidence on the Impacts of the California Competes Tax Credit
June 2021
Working Paper Number:
CES-21-13
We evaluate the effects of one of a new generation of economic development programs, the California Competes Tax Credit (CCTC), on local job creation. Incorporating perceived best practices from previous initiatives, the CCTC combines explicit eligibility thresholds with some discretion on the part of program officials to select tax credit recipients. The structure and implementation of the program facilitates rigorous evaluation. We exploit detailed data on accepted and rejected applicants to the CCTC, including information on scoring of applicants with regard to program goals and funding decisions, together with restricted access American Community Survey (ACS) data on local economic conditions. Using a difference-in-differences approach, we find that each CCTC-incentivized job in a census tract increases the number of individuals working in that tract by over two ' a significant local multiplier. We also explore the program's distributional implications and impacts by industry. We find that CCTC awards increase employment among workers residing in both high income and low income communities, and that the local multipliers are larger for non-manufacturing awards than for manufacturing awards.
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After the Storm: How Emergency Liquidity Helps Small Businesses Following Natural Disasters
April 2024
Working Paper Number:
CES-24-20
Does emergency credit prevent long-term financial distress? We study the causal effects of government-provided recovery loans to small businesses following natural disasters. The rapid financial injection might enable viable firms to survive and grow or might hobble precarious firms with more risk and interest obligations. We show that the loans reduce exit and bankruptcy, increase employment and revenue, unlock private credit, and reduce delinquency. These effects, especially the crowding-in of private credit, appear to reflect resolving uncertainty about repair. We do not find capital reallocation away from neighboring firms and see some evidence of positive spillovers on local entry.
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How Big is Small? The Economic Effects of Access to Small Business Subsidies
June 2024
Working Paper Number:
CES-24-28
Industry size standards that determine eligibility for small business subsidies have vastly increased
over the past decade. We exploit quasi-random variation in the implementation of size standard
increases to study the effects on small firms, subsidy allocation, and industry outcomes using
Census Bureau microdata. Following size standard increases, revenues decline for an industry's
smallest firms, and they are less likely to survive. We link these effects to a reallocation of
government procurement contracts from smaller to larger firms. Consequently, industries become
more concentrated and growth declines. These findings highlight the broad economic effects of
changing eligibility for small business subsidies.
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Who Creates Jobs? Small vs. Large vs. Young
August 2010
Working Paper Number:
CES-10-17
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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OWNER CHARACTERISTICS AND FIRM PERFORMANCE DURING THE GREAT RECESSION
September 2014
Working Paper Number:
CES-14-36
Minority owned businesses are an increasing important component of the U.S. economy, growing at twice the rate of all U.S. businesses between 2002 and 2007. However, a growing literature indicates that minority-owned businesses may have been especially impacted by the Great Recession. As house prices declined, foreclosures fell disproportionately on urban minority neighborhoods and one of the sources of credit for business owners was severely constrained. Using 2002-2011 data from the Longitudinal Business Database linked to the 2002 Survey of Business Owners, this paper adds to the literature by examining the employment growth and survival of minority and women employer businesses during the last decade, including the Great Recession. At first glance, our preliminary findings suggest that black and women-owned businesses underperform white, male-owned businesses, that Asian-owned businesses outperform other groups, and that Hispanic-owned businesses outperform non-Hispanic ones in regards to employment growth. However, when we look only at continuing firms, black-owned businesses outperform white-owned businesses in terms of employment growth. At the same time, we also find that the recession appears to have impacted black-owned and Hispanic-owned businesses more severely than their counterparts, in terms of employment growth as well as survival. This is also the case for continuing black and Hispanic-owned firms.
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High-Growth Entrepreneurship
January 2017
Working Paper Number:
CES-17-53
We study the patterns and determinants of job creation for a large cohort of start-up firms. Analysis of the universe of U.S. employers reveals strong persistence in employment size from firm birth to age seven, with a small fraction of firms accounting for most employment at both ages, patterns that are little explained by finely disaggregated industry controls or amount of finance. Linking to data from the Survey of Business Owners on characteristics of 54,700 founders of 36,400 start-ups, and defining 'high growth' as the top 5% of firms in the size distribution at age zero and seven, we find that women have a 30% lower probability of founding high-growth entrepreneurships at both ages. A similar gap for African-Americans at start-up disappears by age seven. Other differences with respect to race, ethnicity, and nativity are modest. Founder age is initially positively associated with high growth probability but the profile flattens after seven years and even becomes slightly negative. The education profile is initially concave, with advanced degree recipients no more likely to found high growth firms than high school graduates, but the former catch up to those with bachelor's degrees by firm age seven, while the latter do not. Most other relationships of high growth with founder characteristics are highly persistent over time. Prior business ownership is strongly positively associated, and veteran experience negatively associated, with high growth. A larger founding team raises the probability of high growth, while diversity (by gender, age, race/ethnicity, or nativity) either lowers the probability or has little effect. More start-up capital raises the high-growth propensity of firms founded by a sole proprietor, women, minorities, immigrants, veterans, novice entrepreneurs, and those who are younger or with less education. Perhaps surprisingly, women, minorities, and those with less education tend to choose high growth industries, but fewer of them achieve high growth compared to their industry peers.
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Locally Owned Bank Commuting Zone Concentration and Employer Start-Ups in Metropolitan, Micropolitan and Non-Core Rural Commuting Zones from 1970-2010
August 2018
Working Paper Number:
CES-18-34
Access to financial capital is vital for the sustainability of the local business sector in metropolitan and nonmetropolitan communities. Recent research on the restructuring of the financial industry from local owned banks to interstate conglomerates has raised questions about the impact on rural economies. In this paper, we begin our exploration of the Market Concentration Hypothesis and the Local Bank Hypothesis. The former proposes that there is a negative relationship between the percent of banks that are locally owned in the local economy and the rate of business births and continuations, and a positive effect on business deaths, while that latter proposes that there is a positive relationship between the percent of banks that are locally owned in the local economy and the rate of business births and continuations, and a negative effect on business deaths. To examine these hypotheses, we examine the impact of bank ownership concentration (percent of banks that are locally owned in a commuting zone) on business establishment births and deaths in metropolitan, micropolitan and non-core rural commuting zones. We employ panel regression models for the 1980-2010 time frame, demonstrating robustness to several specifications and spatial spillover effects. We find that local bank concentration is positively related to business dynamism in rural commuting zones, providing support to the importance of relational lending in rural areas, while finding support for the importance of market concentration in urban areas. The implications of this research are important for rural sociology, regional economics, and finance.
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