Do small businesses create more jobs? New evidence for Europe
- 1.1k Downloads
In this paper, we argue why, in our view, the so-called dynamic classification method should be favored when determining the contribution of small businesses towards job creation. First, it is the only method that consistently attributes job creation or loss to the size class in which it actually occurs. In addition, dynamic classification has two other advantages: (1) it is not vulnerable to the so-called regression to the mean bias, and (2) only a small number of aggregated data are required for its application. Using the dynamic classification, we analyze job creation within the different size classes for the 27 Member States of the European Union. Our main findings are as follows. For the EU as a whole, smaller firms contribute on a larger scale towards job creation than do larger firms. Net job creation rates decrease with each firm size class. This pattern occurs in most industries, however, not in all; the manufacturing industry and trade industry show different patterns. At the level of individual countries, the net job creation rate also tends to decrease with each firm size class. However, this relationship is not perfect.
KeywordsEmployment growth by size class Employment creation Firm employment decisions
JEL ClassificationsE24 M51 L25 L26
We are appreciative to two anonymous experts for their constructive suggestions towards the improvement of this paper. The research has been supported by the framework of the research program SCALES carried out by Panteia/EIM and financed by the Dutch Ministry of Economic Affairs.
- Birch, D.L. (1979). The job generation process. Unpublished report prepared by the MIT Program on Neighborhood and Regional Change for the Economic Development Administration. Washington, DC: Department of Commerce.Google Scholar
- Birch, D. L. (1981). Who creates jobs? The Public Interest, 65, 3–14.Google Scholar
- Birch, D. L. (1987). Job creation in America: How our smallest companies put the most people to work. New York: The Free Press.Google Scholar
- Butani, S. J., Clayton, R. L., Kapani, V., Spletzer, J. R., Talan, D. M., & Werking, G. S., Jr. (2006). Business employment dynamics: Tabulations by employer size. Monthly Labor Review, 129, 3–22.Google Scholar
- Davidsson, P. (1996). Methodological concerns in the estimation of job creation in different firm size classes. Working Paper, Jönköping International Business School.Google Scholar
- De Kok, J. M. P., de Wit, G., & Suddle, K. (2006). SMEs as job engine of the Dutch private economy. Research Report H2000601. Zoetermeer, The Netherlands: Panteia/EIM.Google Scholar
- De Kok, J. M. P., Vroonhof, P., Verhoeven, W., Timmermans, N., Kwaak, T., Snijders, J. & Westhof, F. (2012). Do SMEs create more and better jobs? Brussels: European Commission. http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/performance-review/pdf/do-smes-create-more-and-better-jobs_en.pdf. Accessed 22 February 2012.
- Okolie, C. (2004). Why size class methodology matters in analyses of net and gross job flows. Monthly Labor Review, 127(7), 3–12.Google Scholar