The importance small businesses for both job creation and job loss in our economy is highlighted in a new study from the SBA Office of Advocacy. Through much of the 1990s and and into the 2000s, small businesses accounted for 65% of new jobs created in the economy. But since the recession took hold, small business has accounted for 60% of job losses.
Over the 15-year period from 1993 to 2008, small businesses created some 65 percent of the net new jobs in the private sector, according to conservative estimates cited in a new report from the SBA Office of Advocacy.
Advocacy economist Brian Headd notes that many of the new jobs were in new business startups, but an even larger share were in expanding firms of all sizes–particularly mid-sized firms with 20-499 employees.
“More and more, we’re finding that both new startups and ongoing high-growth firms have important roles to play in the labor market,” said Acting Chief Counsel for Advocacy Susan M. Walthall. “Fast-growing firms scattered across the economy create a large share of jobs–and because no one can predict which idea will be the next to catch on, it’s important to create an environment in which a wide spectrum can start up and expand.”
Advocacy’s analysis of the quarterly Bureau of Labor Statistics data show that over the 15 years from 1993 to mid-2008, 31 percent of net job gains (jobs created minus jobs lost) came from the opening of new establishments. An even larger share–the remaining 69 percent–were from ongoing firms of all sizes that expanded. (These net figures are based on establishment openings minus closings and establishment expansions minus contractions.)
But then came the recession.
In the current recession, firms with fewer than 20 employees began losing jobs as early as the second quarter of 2007. Small business have accounted for 60% of all job losses. From 2008 to the second quarter of 2009, these smallest firms accounted for 24 percent of the net job losses. Businesses with 20-499 employees accounted for 36 percent of job losses. The remaining 40 percent of job losses were in large firms with more than 500 employees.
Keep in mind that up until 2007, small businesses under 500 employees and larger firms each made up about 50% of the workforce.
In every past recession it has been small businesses that have kick-started job creation. We don’t see evidence of that happening right now, and federal policy is doing everything wrong to help entrepreneurs play the vital role of job creation in our dire economic situation.