Cleveland Fed study highlights growing importance of multi-establishment businesses to job creation

The rate at which Americans start new businesses has declined significantly over the past three decades, raising concerns about the state of entrepreneurship in the US and the important role that new companies play in job creation. But a study published by the Cleveland Fed says discussions about the engines of job growth may be too narrowly focused on new firms.

As markets and consumer preferences change, new business establishments are created to serve them. These new establishments can be provided by entrepreneurs founding new firms or by the owners of existing businesses opening new locations, or outlets. Over the past 33 years, new establishments have increasingly been provided by existing businesses expanding into new locations, and those new outlets have created jobs at a higher rate than brand new firms, according to Mark Schweitzer, research director at the Federal Reserve Bank of Cleveland, and two visiting scholars at the Bank: Scott Shane, a professor at Case Western Reserve University, and Ian Hathaway, the managing director of Ennsyte.

The researchers say this represents a shift in the source of new establishment formation and job creation. New markets that used to be served by independent entrepreneurs creating businesses are now increasingly being served by the expansion of existing businesses. Interestingly, this has occurred throughout the major industry categories; it is not being driven by the retail establishments where the trend has been previously noted.

While highlighting the increasing rate of new outlet formation, the researchers caution that the growth of new outlets does not totally offset the declining trend in new firm formation, noting that the overall rate of new establishment formation is still declining.

Read The Shifting Source of New Business Establishments and New Jobs

You might also be interested in On the Relationships Between Wages Prices and Economic Activity, released earlier this week.

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Doug Campbell, doug.campbell@clev.frb.org, 513.218.1892