Tuesday, September 14, 2010

"Think Small Business Is Job Engine? Think Again"

From Real Time Economics:
One economic adage is that small businesses generate the bulk of all U.S. jobs. It’s a rule of thumb often cited by politicians. The problem is: the truism may not be entirely true. The age of the firm–not its size–matters more.

Three economists looked into the debate between firm size and employment growth. John Haltiwanger, an economics professor at the University of Maryland, along with Javier Miranda and Ron Jarmin from the Census Bureau used Census data on firms and establishments by their age and numbers of employees from 1992 to 2005.

Not surprising, start-ups generate a lot of jobs in their first year. “Start-ups tend to be small so most of the truth to the popular perception is driven by the contribution of start-ups” to net job growth, says the paper. The problem is that many of those jobs don’t last.

“Start-ups contribute to job creation, but they also contribute disproportionately to job destruction,” says Haltiwanger. Indeed, the research shows that within five years, 40% of start-up jobs have been lost because the firms went out of business.

Sustainable job growth seems to kick in once a business reaches its five-year anniversary, and better job growth occurs when the 10-year mark is reached. Like fine wine, job creation improves with age, and that’s true whether or not a firm is large or small....MORE