Remarks on The Role of Small Business and Entrepreneurship in - PowerPoint PPT Presentation

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.

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 t ti ller and growi d ing more sl lowl ly – Second paper focuses on recession and anemic recovery • Small Businesses Hit Especially Hard • Problem is • Problem is “mostly cyclical mostly cyclical ” • 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.

Why is Skewness Important? Why is Skewness Important? • Partly a matter of perspective a t a atte o pe spect e • But skewness and related findings raises q questions about key conclusions First paper: – • Are Facts Robust? • How should we interpret? H h ld i t t? – 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).

Skewness in Size Distribution of Firms and Establishments, U.S. Private Sector, 1980 ‐ 2009 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0 1 0.1 0 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

90th and 10th Percentiles of Net Employment Growth Rates for Surviving U.S. Private Sector Firms by Firm Age 1 0.8 0.6 0.4 0.2 0 0 1 2 3 4 5 6 to 10 11 to 15 16+ ‐ 0.2 ‐ 0.4 ‐ 0.6 Firm Age Class Firm Age Class 10th Percentile 90th Percentile Source: Firm ‐ level data used by Haltiwanger, Jarmin and Miranda (2011)

Up or Out Dynamics of Young U.S. Private Sector Firms (1992-2005) 0.2 0.15 0.1 0 1 0.05 0 Fi Firm Age A Net Employment Growth (Continuing Firms) Job Destruction from Exit Source: Haltiwanger, Jarmin and Miranda (2011)

Startups and High Growth (Annual Growth>25 percent) Existing Firms Disproportionately Create Jobs, U.S. Private Sector 60 50 40 30 20 10 0 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)

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

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

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

Average Size of New Firms and Establishments bl h Source: Figure 7, Litan and Reedy (2011), Kauffman Foundation

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 2010 Census Firm Census EIN Firm BLS EIN Firm Census Establishment Source: Census BDS and BLS BED (estimated latter from public sources)

Employment Share for Businesses with 500+ employees 0.6 0.55 0.5 0.45 0.4 0.35 0.3 0 25 0.25 0.2 0.15 1980 1985 1990 1995 2000 2005 2010 Census Firm Census EIN Firm BLS EIN Firm Census Establishment

BLS and Census Business Level Data Show Robust P tt Patterns Hi Highly R l hl Relevant for S t f Second d paper… 11.0 18.0 Percent of Employment l 10.0 17.0 9.0 16.0 8.0 15.0 7.0 14.0 6.0 13.0 5.0 12.0 Job Creation 4.0 11.0 Job Destruction 3.0 10.0 2011 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: BLS BED DATA, Davis, Faberman and Haltiwanger (2011)

Trends in Gross Flows and Net Job Creation Avg 1980 ‐ 1989 Avg 1990 ‐ 1999 Avg 2000 ‐ 2009 18.2 16 7 16.7 16.2 15.8 14.9 14.8 3.5 3.0 3.0 2.6 2 6 2.0 1.9 0.9 Gross Job Creation Job Creation (Startups) Gross Job Destruction Net Job Growth Source: Haltiwanger, Jarmin and Miranda (2011) Using Census BDS data.

Job Creation from New Establishments, New Firms and High Growth Existing Firms, U.S. Private Sector 11.00 10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 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

Gross Job Creation Levels by Employer Size p y 3.0 3.0 2.8 2.8 2.6 2.6 2.4 2.4 2.2 2.2 2.0 2.0 Job Creation 1 8 1.8 1 8 1.8 (millions) 1.6 1.6 1.4 1.4 1.2 1.2 1.0 1 0 1.0 1 0 0.8 0.8 0.6 0.6 Size Class 0.4 0.4 (1-19) (20-99) 0 2 0.2 0 2 0.2 (100-499) (500+) 0.0 0.0 2011 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Quarter Source: BLS BED

Job Destruction Levels by Employer Size Job Des truction Le els by Employ v er Size 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 Job Destruction 1.8 1.8 (millions) 1.6 1.6 1.4 1.4 1.2 1.2 1.0 1.0 0.8 0.8 0.6 0.6 Size Class Si e Cl ass 0.4 0.4 (1-19) (20-99) 0.2 0.2 (100-499) (500+) 0.0 0.0 11 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 20 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 Quarter Source: BLS BED

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 i l crisis i i – Part of declining dynamism of U.S. Businesses – So problem is not only cyclical So problem is not only cyclical • Importance of high growth firms implies that (unweighted) average expectations of small businesses from NFIB surveys may not be th f b he most relevant l – Need to know business conditions and expectations for the (relatively y small number of) hig gh g growth firms.

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