Well,
that’s certainly a mantra in economic development circles, but the May 2012 The
Connecticut Economic Digest shows the story is a little more
complicated. Small, medium, and large businesses are constantly creating and
destroying jobs (i.e., churning). But firm size isn’t the only thing currently affecting
churning; firm age matters too.
From 1988
to 2007, “essentially all net job creation came from new firms, which accounted
for 31,600 new jobs.” Now, when you break down this group by size, 84% of these
jobs came from small firms (under 50 employees). Well, that’s good, right? Yes,
but remember, a new small firm cannot destroy jobs because it was just born, so
to speak. The opposite is true for established firms, regardless of age.
But there’s
more. The data “shows that small firms
end up destroying a majority of the jobs they create as they age from new, into
young, established, and mature firms.” Job destruction comes with aging. Small
firms, regardless of age, accounted for 39% of all jobs created from 1988-2007
and 38% of all that were destroyed. In contrast, “mature firms, which account
for the majority of job creation and destruction, account for negative net job
creation of -16,800, of which 70% comes from small firms.”
According
to the study, most jobs are created in mature firms (11 years or older),
regardless of size. “Even though a greater number of jobs are also destroyed by
mature firms, the number of opportunities available from mature firms outweighs
availability of jobs from firms of all other categories, including small
businesses.”
What does
this mean for public policy? At least two things: policy analysts might examine
the reasons why jobs are destroyed in small and large firms and develop
strategies to counteract that process. Or, they can find ways to help people
who lose their jobs gain the skills needed to fill the ones that are
created.
