Where Do Jobs Come from

Where are the jobs?

Small firms versus large firms

Most businesses are small. Almost 96 percent (or 4.7 million) of firms had payrolls with fewer than 50 people in 2011 (the latest census data available). These firms accounted for 28 percent of all payroll jobs. They also create many new jobs—about 40 percent of new jobs each year, on average. However, the rate of gross job gains fell sharply for small firms during the recession and recovery, in part because fewer new firms were created but also because small firms sharply curtailed hiring as heightened uncertainty and a weak economy made them more hesitant to expand.

Large firms are also an important source of new jobs. The largest 1 percent of firms account for about as many new jobs each year as do all the firms with fewer than 50 employees. But large firms have also been creating jobs at an unusually slow pace.


New firms versus young firms

Start-ups gained a lot of attention in the aftermath of the recession, in part because of the dramatic decline in new business formation. These new firms are also important because they create an outsized share of new jobs. In 2011, 8 percent of firms were new—most of them were very small—and they contributed about 16 percent (or 2.5 million) of new jobs that year. But having a continual flow of new firms each year is important because the jobs that start-ups create can be fleeting. Indeed, more than half of young firms typically fail within their first five years of operation.

Gazelles versus gorillas

Although many firms fail in their early years, a small fraction of young firms grow very rapidly. These so-called gazelle businesses are also a significant source of job creation. A recent Atlanta Fed study looked at the properties of fast-growing Georgia firms during the 2000s and found that about half of the firms that had a high rate of employment growth were young. However, more jobs were generated by older, generally larger, fast-growing firms, sometimes called gorillas. On a national level, high-growth firms have declined as a share of all firms, from 3 percent in the late 1990s to 1.5 percent in 2011. During the same time, these fast-growing firms added fewer jobs, falling from 45 percent of jobs created at expanding firms to 34 percent.


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