The Myth of Small Firms as the Predominant Job Generators

Abstract

The idea that small firms create the great majority of jobs in all industrialized economies has become part of the conventional wisdom, repeated by politicians, journalists, business lobbyists, and economic development planners. New or more complete data on the United States, Germany, and Japan, and other information on the OECD countries taken together, shows that this popular characterization is, at best, misleading, and in many respects, incorrect. Industrialized economies may proliferate large numbers of small companies and establishments, but the largest business organizations continue to account for the great majority of jobs, to pay the highest wages and benefits, and to dominate the coordination of production among networks of firms, the control of finance, and the adoption and implementation of new technology. The implication for policy is not that public support for small firms should be abandoned, but rather that a more balanced approach to economic development is needed, one which properly accounts for the continuing central role of the big firms and their strategic partners—even in what some have called this "age of flexibility. "