Which Types of Businesses Drive Job Creation?

<p>Jonathan Morgan is a School of Government faculty member.</p> <p>A widely cited statistic that is generally accepted at face value is that anywhere from 60 to 80 percent of new jobs are created by small and/or existing firms.  What is the basis for this information?  Is this a well-established fact or merely a factoid?  This statistic is based largely on some pivotal research published by economist David Birch in the 1980s.  Birch analyzed a sample of 5.6 million business establishments compiled from Dun & Bradstreet data files for the period 1969 to 1976 and found that  firms with 20 or fewer employees created two-thirds of all net new jobs and firms with 100 or fewer employees created about 80 percent of net new jobs.[i]  In 1994, Birch co-authored a book chapter that used an animal metaphor to characterize different types of firms and their likely contribution to job creation.[ii]  Using this metaphor, the “gazelles” are the young start-up firms that grow rapidly and add substantial numbers of jobs.  By contrast, the “elephants” are the large, established businesses that do not experience much increase in net employment and the “mice” create jobs when they start up but tend to stay relatively small.  Birch’s findings are often used to demonstrate the potential of economic development strategies that focus on retaining and growing existing small businesses and supporting entrepreneurship.  The contemporary thinking is that those strategies are more effective approaches to economic development than traditional industrial recruitment due to the “fact” that they account for the lion’s [...]</p>