Sunday, 31 October 2010

Does size matter?

An age old question.

And one that keeps coming up in policy circles when talking about job creation. And when are policymakers not talking about job creation?

There is a view, often strongly argued, that small and new firms create a disproportionate share of new jobs. Which means that governments should be helping new firms if they want new jobs. But is it right? John Haltiwanger, Ron Jarmin, and Javier Miranda take a look at the US data and find that it is age, not size, that matters. (That will come as a relief to many I'm sure!)
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.

No comments: