How Large are the Direct Employment Effects of New Businesses? An Empirical Investigation for West Germany

We analyze the development of employment in start-up cohorts, which is the direct gross employment effect of the new businesses. The data is for West Germany and covers the 1984–2002 period. While total employment in the cohorts remains above the initial level in manufacturing, we find a pronounced decline of employment below this level in the service sector. Only a small fraction of the firms create a considerable amount of jobs. The contribution that the start-up cohorts of the 1984–2002 period made to total employment in 2002 is nearly three times as high in services as in manufacturing. Copyright Springer 2006