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For Job Creation, Firm Youth and Fast Growth Matter More than Small Size

(p. C3) Economist David Birch of the Massachusetts Institute of Technology claimed in the late 1970s--inaccurately, as it turned out--that small businesses were the jobs engine of the economy, which allowed advocates to argue that aid to small businesses was a driver of economic growth. This narrative was reinforced by the wave of startups in the tech sector in the 1980s and 1990s. By 2000, all new businesses, no matter how technologically primitive or undercapitalized, were being called startups. A new biotech company was a startup, but so was a new three-person lawn-mowing business. Only child-labor laws prevented lemonade stands from being classified as startups, too.

A 2010 study published by the National Bureau of Economic Research showed, however, that it is the age of a firm, not its size, that matters for job creation. Just as children grow faster than adults, young firms grow faster than mature ones.

. . .

Government at every level can certainly do more to eliminate unnecessary regulations and to streamline those regulations that serve crucial public ends. But such reforms should benefit all businesses, regardless of size.

. . .

Beyond the injustice of it, small-business favoritism reverberates throughout the economy, slowing growth in two ways. First, subsidies and other size-based industrial policies slow productivity growth by enabling less efficient small firms to gain more market share than would otherwise be the case. Second, discriminatory policies provide an incentive for small firms to remain small. Why add five more workers when doing so would subject you to a host of new regulations and restrict your access to government handouts?

For the full commentary, see:

Robert D. Atkinson and Michael Lind. "Stop Propping Up Small Business." The Wall Street Journal (Saturday, April 7, 2018): C3.

(Note: ellipses added.)

(Note: the online version of the commentary has the date April 6, 2018.)

The commentary quoted above, is based on:

Atkinson, ‎ Robert D., and Michael Lind. Big Is Beautiful: Debunking the Myth of Small Business. Cambridge, MA: The MIT Press, 2018.

The published version of the 2010 National Bureau of Economic Research working paper, mentioned above, is:

Haltiwanger, John C., Ron S. Jarmin, and Javier Miranda. "Who Creates Jobs? Small Vs. Large Vs. Young." Review of Economics and Statistics 95, no. 2 (May 2013): 347-61.

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