David Birch: The Job Generation Process

David Birch, 1979 The Job Generation Process Journal: MIT Program on Neighborhood and Regional Change vol 302 pp

Abstract:

This statistical report on the behavior of individual firms assesses how changes in employment and regional growth occur. A longitudinal file is developed for 5.6 million business establishments, used the Dun & Bradstreet Corporation data for December 31st of 1969, 1972, 1974, and 1976. Since rate of job replacement is the key factor in regional growth, the data is analyzed to measure components of change, job generation, and ownership control. Six components of change are identified — birth, death, expansion, contraction, in-migration and out-migration. Among the data provided are components of employment change by state; status of firms versus employment gains; net employment change by region, industry, status and size; components of change by region, industry, size and age; and percentage change for establishments. A profile of the job-generating firm shows that it is not a large corporation, but a small, independent, and volatile business. Therein lies the problem for development policymakers, since these firms tend to be difficult to identify and work with. Policy makers should not attempt to stem migration of businesses, as this is found to be an insignificant factor in economic development. Rather, policymakers should focus on job replacement rather than reducing the rate of job loss, which has proven difficult to change and is relatively stable across states. Pleasant physical environment and strong local government are important incentives for firm location, and should be further investigated in relation to job generation. In sum, an indirect approach to studying small business as the major generator of jobs is advised, in which the proposed next step is to analyze data on individual firms alongside the the characteristics of the places where firms decide to locate. original source ssrn

This is a key article in endogenous growth. Widely criticised since because of methodological difficulties, but remains a landmark document that offered a way forward for local authorities in the 1980s at a time of widespread business change.

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