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Remarks on The Role of Small Business and Entrepreneurship in Business and Entrepreneurship in Job Creation* John Haltiwanger University of Maryland and NBER University of Maryland and NBER Without implication these remarks draw heavily on

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Remarks on “The Role of Small Business and Entrepreneurship in Business and Entrepreneurship in Job Creation”*

John Haltiwanger University of Maryland and NBER University of Maryland and NBER

Without implication these remarks draw heavily on joint research with Steven Davis Without implication these remarks draw heavily on joint research with Steven Davis, Jason Faberman, Ron Jarmin and Javier Miranda.

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Overview Overview

Two excellent papers:

– First focuses on changes in average size of establishments and in turn establishment startups. Two key highlights:

Declining average size of establishments
New est bli

tablish hment ts starting small ller and growi ing more sl lowl ly t ti d

– Second paper focuses on recession and anemic recovery

Small Businesses Hit Especially Hard
Problem is “mostly cyclical

mostly cyclical ”

Problem is
Small businesses are more pessimistic about sales and growth than

any time since 1980

Financial constraints not the most critical factor
Broad comment:

– Both papers would benefit from taking into account skewness of size distribution of levels of businesses AND growth of activity.

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a t a atte o e

Why is Skewness Important? Why is Skewness Important?

Partly a matter of perspective

pe spect

But skewness and related findings raises

questions about key conclusions q

– First paper:

Are Facts Robust?

H h ld i t t?

How should we interpret?

– Second paper:

Considering exp

pectations of AVERAGE small business interesting but incomplete

– Especially on an unweighted basis (that is, not weighting by some measure of economic activity).

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Skewness in Size Distribution of Firms and Establishments, U.S. Private Sector, 1980‐2009

0.9 1 0.6 0.7 0.8 0.4 0.5 0 1 0.2 0.3 0.1 Share of Establishments Share of Employment at Share of Firms Share of Employment at Firms Establishments 1 to 19 employees 500+ employees

Source: Census BDS

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1 0.8 0.4 0.6 0.2 ‐0.2

1 2 3 4 5 6 to 10 11 to 15 16+

‐0.6 ‐0.4

90th and 10th Percentiles of Net Employment Growth Rates for Surviving U.S. Private Sector Firms by Firm Age

Firm Age Class Firm Age Class 10th Percentile 90th Percentile

Source: Firm‐level data used by Haltiwanger, Jarmin and Miranda (2011)

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0.2

Up or Out Dynamics of Young U.S. Private Sector Firms (1992-2005)

0.15 0 1 0.1 0.05 Fi A Firm Age

Net Employment Growth (Continuing Firms) Job Destruction from Exit

Source: Haltiwanger, Jarmin and Miranda (2011)

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Startups and High Growth (Annual Growth>25 percent) Existing Firms Disproportionately Create Jobs, U.S. Private Sector

60 50 40 30 20 10 Startups High Growth Existing Firms Share of Firms Share of Job Creation

Source: Tabulations from Firm‐Level Data Used in Haltiwanger, Jarmin and Miranda (2011)

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Net Employment Growth by Base Year Firm Size

0.200 0.150 0.100 0.100 0.050 0.000

0.050

Base Year Size Base Year Size with Age Controls

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Robustness of Facts about Average Establishment Size and How to Establishment Size and How to Interpret?

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Source: Bottom panel of Figure 3 of Choi and Spletzer (2011)

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Average Size of New Firms and bl h Establishments

Source: Figure 7, Litan and Reedy (2011), Kauffman Foundation

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More Robust to Examine Employment Shares Shares…

Employment Share for Businesses with 1‐19 employees

0.3 0.275 0.25 0.225 0.2 0.175 0.15 1980 1985 1990 1995 2000 2005 Census Firm Census EIN Firm BLS EIN Firm Census Establishment

Source: Census BDS and BLS BED (estimated latter from public sources)

2010

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Employment Share for Businesses with 500+ employees

0.6 0.5 0.55 0.45 0.35 0.4 0 25 0.3 0.2 0.25 0.15 1980 1985 1990 1995 2000 2005 2010 Census Firm Census EIN Firm BLS EIN Firm Census Establishment

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BLS and Census Business Level Data Show Robust P tt Patterns Hi Highly R l Relevant for S Second d paper… hl t f

18.0 11.0

Percent of l

16.0 17.0 9.0 10.0

Employment

14.0 15.0 7.0 8.0 12.0 13.0 5.0 6.0 10.0 11.0 3.0 4.0

Job Creation Job Destruction

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: BLS BED DATA, Davis, Faberman and Haltiwanger (2011)

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Trends in Gross Flows and Net Job Creation

18.2 16 7 Avg 1980‐1989 Avg 1990‐1999 Avg 2000‐2009 16.2 16.7 14.8 15.8 14.9 3.5 3.0 2 6 2.0 3.0 1.9 2.6 0.9 Gross Job Creation Job Creation (Startups) Gross Job Destruction Net Job Growth

Source: Haltiwanger, Jarmin and Miranda (2011) Using Census BDS data.

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11.00

Job Creation from New Establishments, New Firms and High Growth Existing Firms, U.S. Private Sector

8.00 9.00 10.00 6.00 7.00 3.00 4.00 5.00 2.00 1.00 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Job Creation (Startups) Job Creation (New Establishments) Job Creation (High Growth Existing Firms)

Source: Census BDS Data

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Gross Job Creation Levels by Employer Size p y

0.4 0.2 3.0 2.8 2.6 2.4 2.2 2.0 1 8 1.8 1.6 1.4 1.2 1 0 1.0 0.8 0.6

(1-19) (20-99)

Size Class

(100-499) (500+)

0 2 0 2 0.0 0.0 3.0 2.8 2.6 2.4 2.2 2.0 1 8 1.8 1.6 1.4 1.2 1 0 1.0 0.8 0.6 0.2

Job Creation (millions)

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Quarter

Source: BLS BED

0.4

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e ass

Job Destruction Levels by Employer Size Des Le els by Employ Size Job truction v er

Job Destruction (millions)

3.0 3.0 2.8 2.8 2.6 2.6 2.4 2.4 2.2 2.2 2 0 2.0 2 0 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.0 Si Cl

(1-19) (20-99) (100-499) (500+)

Size Class 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20

Quarter

Source: BLS BED

0.0 0.2 0.4

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Key Points About Cycle (and relevant for second d paper) )

Startups (

(and y young g and small businesses) ) did take an especially hard hit in recession.

But declining trends in startups and high growth firms

PRIOR t PRIOR to fi financial l crisis i i i

– Part of declining dynamism of U.S. Businesses – So problem is not only cyclical problem is not only cyclical So

Importance of high growth firms implies that

(unweighted) average expectations of small businesses f b l from NFIB surveys may not be th he most relevant

– Need to know business conditions and expectations for the (relatively y small number of) hig gh g growth firms.

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The Role of Small Business and Entrepreneurship in Job Creation

Moderator: Robin Prager, Board of Governors of the Federal Reserve System The Small Business Sector in Recent Recoveries William Dunkelberg, Temple University The Declining Average Size of Establishments: Evidence and Explanations Eleanor J. Choi, U.S. Bureau of Labor Statistics Discussant: John Haltiwanger, University of Maryland–College Park

TOC