Fact 2. Most firms are small. Most of these firms remain small and, conditional on age, are not much more likely to exit
than their larger counterparts.
For instance, in the US, 55% of employer firms have less than five employees (Census Statistics of US Businesses). Almost
90% of firms have less than 20 employees. In addition, there are around 10 million unincorporated self-employed, of whom
only 13.6% have paid employees (Hipple, 2010). The US is not an outlier: firms with less than 20 employees account for
more than 80% of all firms in the 16 developed, emerging and transition economies analyzed by Bartelsman et al. (2009,
Table 6). While small firms are more likely to exit, the difference is small once age is controlled for (Bartelsman et al., 2003,
Fig. 6). Among 5-year old firms in the US, for example, the yearly exit probability for small firms (fewer than 20 employees)
is just under 10%, while it is about 8% for large firms (100 or more employees). Numbers for other countries are similar.
Hence, small firms are there to stay. They are not necessarily future large firms (although of course large firms tend to start
small), nor are they doomed to disappear quickly. Their presence is not simply due to systematic size differences across
industries either, as e.g. Foster et al. (2001) document that within-industry productivity dispersion dominates the
productivity dispersion between industries.