Volatility and Asymmetry of Small Firm Growth Rates 

Over Increasing Time Frames

Rich Perline, Robert Axtell, and Daniel Teitelbaum

Arlington, VA. Under contract no. SBAHQ-05-Q-0018 [21] pages.

With the emergence of new longitudinal data sets, 

researchers are now able to better address questions 

about the dynamics of businesses. This study focuses 

on characterizing the large dispersion of business 

growth rates over increasing time frames and considers whether employment expansions and contractions 

occur symmetrically.

Overall Findings

Previous studies found annual business growth rates 

having heavy tailed distributions (many large expansions and contractions). This study found that over 

longer time frames, the distributions slowly move 

towards lighter tails (fewer large growth changes). 

This slow change in the distributions indicates firms 

tend to maintain their employment change trend.

The study also found evidence to support the 

belief that a systematic difference between job creation and job destruction exists. There are more large 

employment swings among shrinking than expanding 

businesses.

Highlights

• Business growth rates were found to be reasonably well approximated by the asymmetric Subbotin 

distribution, which is a flexible statistical distribution with parameters that allow it to vary from 

very light-tailed to very-heavy tailed. The observed 

business growth rates show a tendency over increasing time periods (from one to five years) towards 

slightly more asymmetry and slightly lighter tails. 

In general, negative rates appear more volatile than 

positive rates.

• Given that job creation and destruction result 

from different processes, accurately modeling positive and negative growth rates necessitates using a 

more flexible statistical distribution that can accommodate the observed lack of symmetry.

• Matching previous research, the variance of 

growth rates was fairly independent of business size.

• Truncating the data by eliminating very large 

expansions and contractions produced differing 

results. Researchers need to realize that excluding what they believe to be outliers or unimportant 

groups of businesses can have a big impact on their 

results.

• Survival rates over the five-year period were 

similar for the different size classes, except the 

smallest. The survival rate for establishments with 

4–7 employees was 75.3 percent; this rate slowly 

rose to 84.2 percent for the 512–1,023 size class. 

Even small size classes had relatively high five year 

survival rates, 61.4 percent for one-person establishments and 70.1 percent establishments with two to 

three persons.

• The report shows the value in utilizing non-publicly available microdata by creating special tabulations to answer important industrial organization 

questions.

Scope and Methodology

The researchers utilized special tabulations from 

the Census Bureau’s Statistics of U.S. Businesses 

(SUSB). (The Office of Advocacy is a partial funder 

of SUSB.) SUSB includes nearly all employer establishments in the United States, except farms. Firmestablishment identifiers exist in the data to create 

December 2006 No. 285

This report was developed under a contract with the Small Business Administration, Office of Advocacy, and contains information 

and analysis that was reviewed and edited by officials of the Office of Advocacy. However, the final conclusions of the report do not 

necessarily reflect the views of the Office of Advocacy.
firm data. But establishments were used as a proxy 

for firms because of the difficulties in following firm 

mergers, spin-offs, and ownership changes in the 

underlying microdata.

Establishments (or business locations) surviving from 1998 to 2003 were the basis for the study. 

Establishments that opened and closed during the 

period were not included in the analysis.

Establishments were divided into equally spaced 

log employment growth rate bins by start year, and 

establishment employment size for differing time 

frames. The distribution of the frequency of the 

logged growth bins were charted and compared.

Given that small firm establishments represent 

the bulk of the data, the overall results reflect small 

firm growth.

This report was peer-reviewed consistent with 

Advocacy’s data quality guidelines. More information on this process can be obtained by contacting 

the director of economic research at advocacy@sba.

gov or (202) 205-6533.

Ordering Information

The full text of this report and summaries of other 

studies performed under contract with the U.S. Small 

Business Administration’s Office of Advocacy are 

available on the Internet at www.sba.gov/advo/research. 

Copies are available for purchase from:

National Technical Information Service

5285 Port Royal Road

Springfield, VA 22161

(800) 553-6847 or (703) 605-6000

TDD: (703) 487-4639

www.ntis.gov

Order number: PB2006-114720 

Pricing Information:

Paper copy A03 ($26.50)

CD-ROM A00 ($20.00)

Download A0 ($15.95)

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