The Role of Entrepreneurship in U.S. and European Job Growth

By Bednarzik, Robert W. | Monthly Labor Review, July 2000 | Go to article overview

The Role of Entrepreneurship in U.S. and European Job Growth


Bednarzik, Robert W., Monthly Labor Review


Entrepreneurial activity, which is higher in the United States than in Europe, is important to job growth, but not as important as job expansions in existing firms

Entrepreneurship, or the creation of a new business or enterprise, is an integral and significant activity in a growing job market. Just as new establishments are created, some existing ones expand, contract, or dissolve operations altogether. Countries that have the capacity and wherewithal to accommodate high rates of business formation and dissolution will be best positioned to compete in world markets.

To examine and monitor this process, government agencies in the United States and Eurostat from the European Union have collected data on the births and deaths of establishments.(1) Until recently, U.S. establishment-based longitudinal data were available only on the manufacturing sector. However, new longitudinal data on the births and deaths of establishments in both the United States and Europe are available. For the United States, the new data series, referred to as the Longitudinal Establishment and Enterprise Microdata (LEEM), provides information on the services sector as well as the manufacturing sector. The Census Bureau collects the data for the U.S. Small Business Administration.(2) European Union data are collected by its "statistical arm," Eurostat, which developed a special data bank from existing statistical administrative data on small- and medium-size enterprises (SMEs) in 1994 and 1995. In addition, the Global Enterprise Monitor project collected comparable data, using a very small sample of 10 industrialized countries to measure the level of entrepreneurship and to study the relationship between business creation and economic growth internationally. The results of the survey show a wide lead in the number of new businesses created in the United States.(3) Although the Establishment and Enterprise Microdata and the Eurostat data on small- and medium-sized enterprises are not comparable, they each shed light on the nature and magnitude of a very important component of job creation--entrepreneurship. This article uses the Establishment and Enterprise Microdata and the international databases to determine the role of entrepreneurship in job growth for the United States and Europe.

The crux of the article examines the births, deaths, expansions, and contractions of establishments by size and industry to determine the net effects on job growth in the 1990s. The focus is on service sector industries, which led employment growth in the United States. Beginning with a description of the data, this article notes that some incompatibilities suggest that it is better to analyze U.S. data separately from European Union data. The article also provides a sectoral overview of the U.S. and European Union job markets to set in perspective the role of entrepreneurship in job creation. The results from the Global Entrepreneurship Monitor project conclude the article.

Tracking and counting

Since 1991, the U.S. Small Business Administration has contracted with the Census Bureau to produce comprehensive and timely data of U.S. businesses by establishment size. This led to the development of the Establishment and Enterprise Microdata file that consists of data on all U.S. private-sector, nonfarm establishments with employees. Data from this series do not include self-employed individuals, but they do track employment levels (size), payroll, and firm affiliation for more than 11 million establishments that existed at some time during the 1989-96 period. It is the first nationwide, high-quality longitudinal database that covers the vast majority of employer businesses from all sectors of the economy.(4) The basic unit of this file is an establishment--defined as a single physical location at which business is conducted or services or industrial operations are performed. An establishment is not necessarily identical to a company or firm, which could consist of one or more establishments. …

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