Small business and jobs

In a recent message I noted that

Most business in New Zealand are small. According to Roger Kerr in a recent article in the Otago Daily Times there are around 413,000 businesses around the country employing five or fewer employees.

I have now come across a new NBER working paper by David Neumark, Brandon Wall and Junfu Zhang, Do Small Businesses Create More Jobs? New Evidence from the National Establishment Time Series. The abstract of the paper reads:

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.

So for the US at least, small businesses create more jobs, on net, than larger ones. Reinforcing the importance of the small business sector to the economy.

(HT: Freakonomics)