Is It Small or New that Drive Job Creation?

The Numbers Guy, Carl Bialik, over at the Wall Street Journal has a piece in today's edition looking at some of the claims about small business job creation occurring in the political debate. It is an important topic, and I was glad to see him tackle it. That said, I was disappointed in his treatment of the question. I have a lot of respect for his columns and how he brings focus to important elements of the discussion that involve numbers. With his treatment of small businesses and jobs, he talked to most of the people I would have talked to but ultimately didn't get into any of the depth that I would have expected. Specifically, I don't think he looked at several important elements closely enough for readers:

Small vs. new

I've written about job statistics over the years and most recently focused on them in our Starting Smaller; Staying Smaller piece. 

And while I haven't jumped directly into the debate about small businesses job creation vs. new business job creation, that seems to be what Carl was starting to do but didn't really. Most of the job creation (and a lot of the destruction) seen when looking at questions about small business job creation comes from small, new businesses. 

These are businesses which are both very small and also happen to be young but which statisticians historically have not been able to disentangle because the data wasn't stored to look at firm dynamics over time. A lot of what we have worked on these past several years has been trying to bring this element of firm age into the discussion about how jobs are created and destroyed. 

And while the column today talks some about this issue near the conclusion, I was not impressed with the treatment of the topic. I recommend the piece by Haltiwanger, Jarmin, and Miranda on this topic. 

When looking at jobs, every lens you observe through has advantages and disadvantages. I wouldn't claim looking through the added element of firm age is perfect, but to me it is still more helpful than just looking at firms smaller than 500 employees. 

Local vs. non-local

The other piece I would have liked him to get into a bit, which he did not, is the lens used by Youreconomy.org. This is a site run by the Edward Lowe Foundation that uses privately-sourced data, NETS, which is based on D&B records. What Lowe does which I like and I think helps the debate so much is to look at "resident" and "non-resident" companies and job creation. 

Essentially this just means that they are able to look at jobs which are created by companies headquartered in a particular region vs. those which are not. They add to this a discussion of business size. 

While I do not think this is the perfect lens, I do think it is at least a helpful one for most local communities in understanding job creation. Because big employers, Fortune 500 companies, for example, can be good employment contributors in some cases but the view you take on their employment might be quite different if they are headquartered in your region vs. if they are not. 

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e.j. reedy data maven

E. J. Reedy

As a director in Research and Policy, E.J. Reedy oversees the Ewing Marion Kauffman Foundation’s research initiatives related to education, human capital development, and data.

Since joining the Kauffman Foundation in 2003, Reedy has been significantly involved in the coordination of the Foundation’s entrepreneurship and innovation data-related initiatives, including the Kauffman Firm Survey, for which he served as a principal investigator, and the Foundation’s multi-year series of symposiums on data, as well as many web-related projects and initiatives. He is a globally recognized expert in entrepreneurship and innovation measurement and has consulted for a variety of agencies.