June 26, 2007 (The Editor’s Desk is updated each business day.)

Small and large firms and job growth

Who creates the most jobs: small businesses or large businesses? This subject has been widely discussed among economists and researchers and is often a topic of political debates citing the important role of small businesses in creating jobs.

[Chart data—TXT]

New statistics from the BLS Business Employment Dynamics program provide data with which to analyze many of the size class methodological issues, and are a valuable data resource with which to answer these questions.

The following findings result from analysis of BLS firm size class data:

• Small firms, those with 1 to 499 employees, create about 64 percent of new jobs.
• The share of growth of small firms is larger than their base share of employment. This growth, however, causes small firms to become large, increasing the employment share of large firms over time.
• Firms of different size classes behave differently throughout the phases of the business cycle. The contribution of large firms to the net job gains during the current economic recovery appears to have come from a fall in the level of gross job losses, rather than increased job creation. The share of gross job gains for this group has not yet reached its pre-recession levels.
• The bulk of net job losses in the 1991 recession occurred in small firms, while large firms have generated the majority of job losses during the economic slowdown of 2001.

These data are from the Business Employment Dynamics program. Data presented here are for workers in private industry covered by State unemployment insurance programs. A firm is defined as an aggregation of establishments under common ownership by a corporate parent. An establishment is defined as an economic unit that produces goods or services, usually at a single physical location, and engages in one, or predominantly one, activity. Find out more in "Employment dynamics: small and large firms over the business cycle," by Jessica Helfand, Akbar Sadeghi, and David Talan, Monthly Labor Review, March 2007.