Do small businesses create more jobs? New evidence for Europe
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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.
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