Small Firm Employment Creation: An Assistance Structure Explanation

Abstract

The study reported in this paper concerns two relative topics rarely treated in political science research; the job creation potential of small firms and public policy analysis in mixed economics. Recent studies by Birch (1979 and 1981), in particular, have led to a resurgent interest in the employment creation potential of small firms. For the US, Birch claims that younger and smaller firms create employment at a faster rate than older and larger ones. There is some evidence for the Federal Republic of Germany and Sweden which seems to corroborate his thesis. In all of these studies the emphasis is on attributes of firms per se (e.g. age, size, sectoral affiliation) and their correlation with employment trends. By contrast, the institutional environments in which small firms may thrive and create jobs have been relatively neglected.. Firms tend instead to be conceptualized as standing alone on ‘market islands’ rather than as part of complex networks of organizational relations; they are seen as part of some (neo)-classical rather than the mixed economy of Western nations. The study on which this paper draws was designed to engage in the detailed institutional analysis implied by the concept of ‘mixed economy’ 1).