Job Creation by Small Firms: Age Matters

Talking about the role of the average or typical small business in job creation is problematic. Discussing it is challenging because job creation is highly skewed along the age dimension of small firms. This point was driven home in a nice presentation (featuring the chart below) by John Haltiwanger at last week’s small business conference cosponsored by the Atlanta Fed, the Board of Governors, and the Kauffman Foundation.

(click to enlarge)

The chart shows the 90th and 10th percentiles of the employment-weighted job growth rate distribution by firm age. The fastest-growing firms are the 90th percentile (in purple) of the growth distribution, and the fastest-shrinking firms are the 10th percentile (in green). The data are from the Census Bureau’s “Business Dynamics Statistics” (for example, here is a related presentation by John Haltiwanger, Ron Jarmin, and Javier Miranda).

As the chart makes clear, the fastest-expanding 10 percent of young firms grow extremely rapidly. While the fastest-growing 10 percent of older firms also expand at a good clip, their growth is much slower than that of their younger-firm counterparts. Note that these are employment-weighted growth rates, so the outsized growth of fast-growing young firms is not an artifact of having a lot of firms with one employee simply doubling in size by hiring an additional worker. Firms that are contracting the most (shown in the 10th percentile) also are skewed along the age dimension, although the differences are not as dramatic.

These differences by firm age are a reason why we at the Atlanta Fed have tried to make our poll of small businesses more representative of the age distribution of firms and have recently been separately featuring the results for young and more mature businesses.

About John Robertson 20 Articles

Affiliation: Federal Reserve Bank of Atlanta

John C. Robertson is a vice president at the Federal Reserve Bank of Atlanta. He is the team leader for the macropolicy and applied microeconomic research group at the Atlanta Fed and is one of the Bank's senior monetary policy advisers.

Dr. Robertson joined the Atlanta Fed's research department in December 1997 from the Australian National University in Canberra, Australia. His research has been published in many distinguished economics journals. He became an assistant vice president in 2000 and assumed his current position in December 2005.

A native of Dunedin, New Zealand, Dr. Robertson holds bachelor's and master's degrees from the University of Canterbury in New Zealand and earned his Ph.D. in economics from Virginia Tech in 1992 and is married with two children.

Visit: John Robertson's Page

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