Where the Jobs Are: Business Dynamics and Employment Growth

Neumark, David; Junfu Zhang; Wall, Brandon
November 2006
Academy of Management Perspectives;Nov2006, Vol. 20 Issue 4, p79
Academic Journal
Jobs are created by births of new businesses, expansions of existing ones, and relocations of businesses into an economy. Conversely, jobs are destroyed by deaths and contractions of existing businesses, and outward relocations. To the extent that state and local policymakers directly address job creation and job destruction, they focus to a large extent on relocation--engaging in efforts to attract new businesses to a state or locality, and attempting to encourage existing businesses contemplating leaving to stay. However, the empirical evidence underlying this focus on relocation is virtually non-existent, as there has been no systematic evidence on the role of business relocation in job creation and destruction. This paper presents new evidence on the importance of each of these processes--births and deaths, expansions and contractions, and in- and out-migration--to employment growth (and decline). We use data from the National Establishment Time Series for California. The evidence indicates that births of new business establishments and especially new firms, and expansions of existing ones, coupled with their counterparts of deaths and contractions of existing establishments, are the prime determinants of employment growth. In contrast to the high profile accorded it by policymakers, business relocation plays a negligible role. The gross job flows (both positive and negative) from births, deaths, expansions, and contractions far outweigh those due to relocation. Moreover, in most years the net difference between expansions and contractions of existing businesses contribute by far the most to job growth.


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