Regional economic growth is highly correlated with the presence of many small, entrepreneurial employers not a few big ones, according to a new study by Harvard professors Ed Glaeser and William Kerr.
Published in the latest Harvard Business Review, the study showed that “cities whose number of “firms per worker’ was 10% higher than the average in 1977 experienced 9% faster employment growth between 1977 and 2000.”
Glaeser and Kerr adjusted their findings for differences in industry structure, tax policy, and other special circumstances to rule out their impact. Even adjusting for such variables, the relationship between small firms and job-growth rate stands.
By analyzing “city-industry clusters,’ which allowed them to adjust for the effects of each city’ s and industry’ s overall growth rate, among other things, they found that industries with smaller firms and more start-ups enjoyed faster employment growth than other industries in the same city and than the same industry in other cities.