Size matters not : the role of small firms in the process of job creation in Argentina

Abstract

There is a widespread perception that small firms are the engine of job creation in Argentina. Some authors have documented in other countries that are the young rather than the small firms that lead the dynamics of job creation and reallocation. This paper uses administrative firm-level data with the entire population of firms to study small and young firms' role in the process of job creation and employment growth in Argentina for the last decade. Three main results emerge from the analysis. First, small firms have an important role in overall gross job creation, but they are highly heterogeneous. When including the age dimension, it becomes evident that are the new and young firms the main contributors to employment growth, while old small firms are net job destroyers. Second, new firms are an essential driver of overall employment growth initially, but they become net destroyers in the subsequent periods. Third, recessions negatively impact the number of births, firm-level growth rates, and the pace of reallocation. Also, size-age groups of firms are affected differently by the crisis episodes; old-small firms are more likely to be negatively affected through the exit channel, whereas young firms are not significantly affected in terms of employment. These findings highlight the importance of startups and young firms in the Argentinean job creation and reallocation process, but also the limitations of their contribution. Most of these results are consistent with other recent findings in developed countries.