Gazelles as job creators: a survey and interpretation of the evidence

Small Business Economics, Sep 2010

It is often claimed that small and young firms account for a disproportionately large share of net employment growth. We conduct a meta-analysis of the empirical evidence regarding whether net employment growth rather is generated by a few rapidly growing firms—so-called Gazelles—that are not necessarily small and young. Gazelles are found to be outstanding job creators. They create all or a large share of new net jobs. On average, Gazelles are younger and smaller than other firms, but it is young age more than small size that is associated with rapid growth. Gazelles exist in all industries. They seem not to be overrepresented in high-technology industries, but there is some evidence that they are overrepresented in services.

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Gazelles as job creators: a survey and interpretation of the evidence

Magnus Henrekson 0 1 Dan Johansson 0 1 JEL Classifications O 0 1 0 D. Johansson The Ratio Institute , Stockholm, Sweden 1 M. Henrekson (&) Research Institute of Industrial Economics , Stockholm, Sweden It is often claimed that small and young firms account for a disproportionately large share of net employment growth. We conduct a meta-analysis of the empirical evidence regarding whether net employment growth rather is generated by a few rapidly growing firmsso-called Gazellesthat are not necessarily small and young. Gazelles are found to be outstanding job creators. They create all or a large share of new net jobs. On average, Gazelles are younger and smaller than other firms, but it is young age more than small size that is associated with rapid growth. Gazelles exist in all industries. They seem not to be overrepresented in high-technology industries, but there is some evidence that they are overrepresented in services. 1 Introduction Research on the economic importance of small firms was negligible until Birch (1979) claimed that they generated a disproportionately large share of new net jobs.1 Birchs findings have been criticized by, e.g., Brown et al. (1990), Davis et al. (1996a, b), and Haltiwanger and Krizan (1999), but they sparked small business research. It is now a vigorous research field with a wide coverage, encompassing issues such as the importance of entrepreneurship, firm demography, and firm dynamics for job creation and economic growth.2 Van Praag and Versloot (2008) review the empirical literature on the economic contribution of entrepreneurial firms, i.e., small and young firms, which are found to have positive effects on employment, productivity, innovation, and utility. With reference to employment Van Praag and Versloot conclude (p. 135): Entrepreneurs create more employment than their counterparts, relative to their size. This result is unambiguous. Small and young firms are required to boost employment.3 1 See also Birch (1981, 1987). 2 See, for instance, Kirchhoff and Greene (1998) for a summary of the discussion. 3 Moreover, they maintain that the methodology of the critics strengthens this conclusion (p. 135): The results from studies following the DavisHaltiwanger methodology, which are not reported here, only add credibility of this result. The purpose of this article is to go one step further and survey the empirical evidence on whether, in fact, net employment growth is generated by a few rapidly growing, not necessarily small and young, firms, so-called Gazelles. The term was coined by Birch some 20 years ago (Landstrom 2005, p. 170) to denote a small group of high-growth firms that, according to him, generated most of the new net jobs in the economy. This stands in contrast to the few large (often publicly traded) companies, known as Elephants, which according to Birch had a large employment share, but generated few new jobs, and to the vast majority of all firms that started out small, grew very little and hence contributed only marginally to employment growth. The latter firms were termed Mice.4 In addition, we are interested in whether Gazelles, in fact, are young and small, and whether Gazelles are overrepresented in high-technology industries.5 Much economic policy has been targeting high-technology firms since politicians have relied on high-technology firms and industries to boost economic growth and job creation. The research questions may be stated as four propositions: Proposition 1: In a population of firms, net employment growth is generated by a small number of high-growth firms, so-called Gazelles. Proposition 2: On average, Gazelles are younger than other firms. Proposition 3: On average, Gazelles are smaller than other firms. Proposition 4: Gazelles are overrepresented in high-technology industries. 4 Gallagher and Miller (1991) instead use the terms flyers and sinkers to denote high- and low-growth firms, respectively. 5 There is an extensive literature studying micro level characteristics of (high-)growth firms. In his wide-ranging survey of this literature Storey (1994, p. 122) identified 35 such factors, which he classified into three categories: (i) the resources of the entrepreneur(s), e.g., motivation and education; (ii) the firm, e.g., age and size; and (iii) strategy, e.g., management training and market positioning; see Barringer et al. (2005) for a recent survey of this literature. The studies identified in our survey generally do not report on any other characteristics than firm age, size, and industry affiliation. Still, it is interesting to include those three characteristics in the survey considering the discussion on the importance of new and small firms and considering the expectation by many on high-technology firms to generate employment (and growth). In the next section we discuss the definition of Gazelles and the method used in our survey. Section 3 reports the results from the identified studies. These results are ana (...truncated)


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Magnus Henrekson, Dan Johansson. Gazelles as job creators: a survey and interpretation of the evidence, Small Business Economics, 2010, pp. 227-244, Volume 35, Issue 2, DOI: 10.1007/s11187-009-9172-z