Abstract
This study examines the relationship between firm size and job creation by using an extensive data set covering all non-farm Turkish businesses with 20 or more employees from 2003 to 2010. We find that small firms (firms with employees between 20 and 100 employees) have higher mean job flow rates (job creation, job destruction and net job creation rates) than large firms. Firm size and job flow rates are inversely related, and this relationship is especially prominent for firms with 50 employees or more. Although the overall pattern observed is also observed in both sectors, job creation rates in services are higher than the ones in manufacturing. The magnitudes of job destruction rates are comparable across sectors. Higher job creation rate in services but comparable job destruction rate results in higher net job creation rate in services. As for shares, only for smaller firms (20–49 and 50–99 size categories), job creation shares are greater than their shares in employment. But these firms have disproportionate job destruction shares as well. We also find that only the 20–49 category firms contribute to net job creation more than their share in employment. The smaller firms have high disproportionate shares in job creation and destruction in manufacturing and services as well.
Highlights
Debate about the relationship between firm size and job creation in general, and in particular whether small firms play a more important role in job creation than large ones, has been going on for a long time
Job creation rates and job destruction rates in both manufacturing and services sectors behave like corresponding overall rates, first slightly increasing when size increases from 20–49 to 50–99, and declining over firm size
We investigate the relationship between firm size and job creation, which is an issue with a long history of controversy
Summary
Debate about the relationship between firm size and job creation in general, and in particular whether small firms play a more important role in job creation than large ones, has been going on for a long time. Davis et al (1996a) argued that size definition of a firm used by Birch tends to bias the contribution of firms to job creation in favour of small firms due to regression fallacy. In Turkey, services and support programmes for small and medium-sized enterprises (S.M.E.s) are mainly provided by the Small and Medium-Sized Enterprises Development Organisation. Existence of S.M.E.-supporting institutions is justified by positing that small and medium firms contribute to job creation disproportionately with their share in total employment. As mentioned above, this is the first study looking into the role of firm size in job creation and destruction in Turkey – a fast-developing dynamic economy.
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