Are Small Businesses Really Job Generators?

According to the latest economic research, yes. . . . or no. . . . actually, it all depends (remember, this is economic research we’re talking about.)  Joking aside, this question really matters to economic developers.  This week an editorial in Bloomberg News summarized some of the findings from economists:

[Recent] economic research shows that small companies play no greater role in job creation than large ones do. What matters more is age: New businesses account for the biggest share of job gains. Those companies tend to be small yet unprofitable. . . .

And once most startups pass the five-year mark, they destroy more jobs than they create.

University of Maryland economist John Haltiwanger found, for example, that small mature businesses have “negative net job creation” and that the bigger contributors to job growth are startups, which account for roughly 3 percent of employment in most years.

These findings do suggest that economic developers looking to create jobs should focus on economic gardening, paying particular attention to young firms and the local “gazelles,” those that are on a fast growth track in their respective industries.



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