First, Birch (1979) provided early evidence in support of the idea that small businesses are the primary engines of job growth. His findings showed that 66 percent of all net new jobs in the United States during 1969––1976 were created by firms with 20 or fewer employees, and 81.5 percent were created by firms with 100 or fewer employees.

Meller (1981) concluded that in 25 out of 40 manufacturing sectors direct employment effects are greater than 50% of the total effect. Large industries create more indirect jobs (as indicated by larger multiplier), while small industries are more labor intensive and create more direct jobs relative to both indirect jobs and direct jobs for same industry large firms. When based on the backward and forward linkages the following sectors are determined to be the key sectors (having either backward and forward linkage coefficient higher than 1, or the sum of those higher than one), the following sectors are key: food and wood (large), wood (small), beverages (large), textiles (large), paper (large), leather (large), basic metals (large), machinery with exception of electrical and diverse manufactures (small).

Kirchhoff and Phillips (1988) examined the contribution of small and large firms to United States job growth and also found that firms with fewer than 100 employees are the major sources of net new job creation. In contrast, firms with more than 1,000 employees provided only 13 percent of all new jobs despite their 37 percent employment share. Moreover, the more recent work of Haltiwanger, Jarmin, and Miranda (2010) suggests that startups and surviving young businesses are critical for job creation and contribute disproportionately to net growth.

Aterido, Hallward- Driemeier and Pages (2007) analyzed the impact of various constraints to finance, corruption, regulation and infrastructure across firm type and firm size in Firm level data based on 70,000 enterprises in 107 countries. They find that for the same amount of financing, smallest firms gain the most, also between exporters and non-exporters, improved capital markets have a greater impact on non-exporters. As for consistent enforcement, it was found to help all firms with greatest benefit to small firms. Moreover, corruption was found to hamper growth in small, medium and large firms. Finally, when business climate is weak firms may be confined to industries with limited innovation and growth opportunities Haltiwanger, Jarmin and Miranda (2011) used data from the Census Bureau Business Dynamics Statistics and Longitudinal Business Database to explore the many issues regarding the role of firm size and growth that have been at the core of this ongoing debate (such as the role of regression to the mean). They find that the relationship between firm size and employment growth is sensitive to these issues. However, their main finding is that once one control for firm age there is no systematic relationship between firm size and growth. Their findings highlight the important role of business startups and young businesses in U.S. job creation. Business startups contribute substantially to both gross and net job creation. In addition, they find an “up or out” dynamic of young firms. These findings imply that it is critical to control for and understand the role of firm age in explaining U.S. job creation.

Large firms have a significant employment share; the small mature firms have the largest share of employment in developing economies. On job creation, the US evidence suggests that small mature firms have net job losses whereas in developing countries we find that small mature firms have the largest share of job creation. Moreover, in countries that have had net job losses in the economy as a whole, it is only the small firms, especially small mature firms that have net job gains (Ayyagari, Demirgu-Kunt, and Maksimovic 2011).

Characteristics of high growth firms in European economies were the focus of many recent studies. An expanding literature on “gazelles” suggests that a small percentage of fast-growing SMEs generate the majority of new jobs in diverse economies. In broad brush, the gazelle 6