New Small Firms And Dimensions Of Economic Performance

Using data from US labor market areas, the authors quantify empirical associations between entry by small firms and a vector of economic performance measures encompassing levels, volatilities and growth rates of several income and employment variables. Distinct and robust associations are found for net and gross rates of entry. These results suggest a richer variety of effects of entry than previously documented, and point to several potential tradeoffs associated with entry by small firms. This paper undertakes the first exploration of these broader associations. They also introduce a new measure of volatility, the component of the standard deviation not explained by trend growth, that improves on the standard deviation as a welfare-relevant measure of volatility.