The impact of the net percentage growth rate in the number of small firms on differential state-level employment growth rates in the US: an exploratory empirical note

This brief exploratory empirical note seeks to identify key determinants of geographic differentials in the percentage growth rate of state-level employment in the US, with the primary focus being on the percentage net growth rate in the number of small firms (i.e., those with fewer than 20 employees) in each state, where this variable serves as a de facto reflection of ‘entrepreneurship’. In the interest of identifying other key factors that influence state-level employment growth rates, the effective income tax rate in each state, quality of life elements and labour market considerations are also included in the analysis. The study period runs from the year 2000 to the year 2007, ending just prior to the ‘Great Recession’. The estimation results imply that the state-level employment growth rate in the US was an increasing function of the percentage net growth rate in the number of small firms in each state. Thus, it appears that the small firms growth rate may in fact be a significant source.