Job Creation in US Is Not Simply Big Firm vs. Small
IT'S an old debate: Who's creating the most jobs - large companies or small? According to David Birch, president of Cognetics Inc., an economic research firm in Cambridge, Mass., the question masks what's really happening today.
``It makes little sense to debate large versus small,'' says Mr. Birch, co-author of a study released today that tracks job growth in the United States. It's most useful to describe firms, not in terms of how big they are, but rather in terms of what they are doing, the study says.
Birch and his co-authors have paid careful attention to three groups of companies that they have nicknamed after animals. Elephants are large, publicly traded firms; mice are small firms that start and grow very little; and gazelles are the mostly smaller firms that start with the intent to grow and successfully pull it off.
Between 1989 and 1993, the gazelle companies, which represent about 3 percent of the firm population, accounted for all of the job growth in the US, the study finds. During this interval they added 4.4 million jobs in an economy that hardly grew at all. Though a majority of gazelle firms start off small, this is not a hard and fast rule. ``The Wal-Marts, the Intels, the Motorolas - these are very successful large companies that share a common determination to do better than everyone else,'' Birch says. ``This is not a small-business phenomenon.''
In fact, the gazelle companies that start from a larger base - typically 500 to 1,000 employees - are ``truly spectacular'' when it comes to adding more jobs to the economy, the study says. ``These companies have the advantage of both size and flexibility,'' Birch says. ``IBM, for example, has a hard time changing. But Dell [Computer Corporation] can change direction, innovate, and reach a global market. It's a smaller kind of big company.''
The western part of the US clearly offers the best opportunities for smaller companies, the study shows. Large firms in Arkansas; Iowa; South Dakota; Washington; Memphis, Tenn.; and Orlando, Fla., are booming. Smaller young firms are outperforming smaller old firms in every region of the country.
``The edges of cities are doing much better than the centers,'' Birch says. ``Most of all, hub airports, warm climates, and great universities are what these companies are looking for.''