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November 18, 2011

Job creation by small firms: Age matters

Talking about the role of the average or typical small business in job creation is problematic. Discussing it is challenging because job creation is highly skewed along the age dimension of small firms. This point was driven home in a nice presentation (featuring the chart below) by John Haltiwanger at last week's small business conference cosponsored by the Atlanta Fed, the Board of Governors, and the Kauffman Foundation.


The chart shows the 90th and 10th percentiles of the employment-weighted job growth rate distribution by firm age (in years). The fastest-growing firms are the 90th percentile (in purple) of the growth distribution, and the fastest-shrinking firms are the 10th percentile (in green). The data are from the Census Bureau's "Business Dynamics Statistics" (for example, here is a related presentation by John Haltiwanger, Ron Jarmin, and Javier Miranda).

As the chart makes clear, the fastest-expanding 10 percent of young firms grow extremely rapidly. While the fastest-growing 10 percent of older firms also expand at a good clip, their growth is much slower than that of their younger-firm counterparts. Note that these are employment-weighted growth rates, so the outsized growth of fast-growing young firms is not an artifact of having a lot of firms with one employee simply doubling in size by hiring an additional worker. Firms that are contracting the most (shown in the 10th percentile) also are skewed along the age dimension, although the differences are not as dramatic.

These differences by firm age are a reason why we at the Atlanta Fed have tried to make our poll of small businesses more representative of the age distribution of firms and have recently been separately featuring the results for young and more mature businesses.

John Robertson John Robertson, vice president and senior economist in the Atlanta Fed's research department

 

November 18, 2011 in Employment, Labor Markets, Small Business | Permalink

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Comments

Are those ages in years? It would be nice to show the units on the graph, or mention them in the post... Maybe I missed it?

Posted by: eric | November 20, 2011 at 04:50 PM

All new firms are small. So, small is important. New firms did not fire 8 million people, existing firms did. There is no job growth unless there is population growth, that's why small firms create most new jobs, just a proliferation of the existing types of firms. The problem today is that existing firms are not fully staffed and we built too many in the boom. If existing firms were staffed up to their pre-2008 levels, the job situation would be much better. New firms can add to that, but at new jobs per NEW firms, we'd need 1.5 million to be added to the existing 6 million employers to re-employ those who lost their jobs. not likely

Posted by: Dunkelberg | December 21, 2011 at 08:50 AM

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