Entrepreneurial Wage Dynamics in the Knowledge Economy

The role that small firms and entrepreneurship play in economic development has been particularly contentious. Joseph Schumpeter (1911), in his early work, argued that through a process of "creative destruction," small and new firms would serve as agents of change and a catalyst for innovation and growth. But, he later rescinded this view, instead concluding that large corporations were the engines of growth. Just as it seemed that a consensus had emerged among scholars and policy makers that small business was at best superfluous and at worst a drag on growth and economic development, David Birch provided evidence that, in fact, small firms were the engines of job creation. The early skepticism of challenge to Birch's findings revolved around methodology and measurement. However, a wave of subsequent studies by different authors, spanning different time periods, sectors, and even countries, generally confirmed Birch's original findings-for most developed countries and in most time periods, small business has provided most of the job creation.