New Data Show Smallest Firms are Nation's Greatest Job Creators
New data from U.S. Bureau of the Census show that the nation's smallest firms -- those with 0-4 employees -- created virtually all the net new jobs between 1989 and 1991.1,2,3
Tabulations prepared by the Office of Advocacy, based on the Census data, show that most of these jobs were created through expansions by businesses that were on average at least two years old. Firms were classified by their size in the base year, 1989.
Chief Counsel for Advocacy Jere W. Glover said, "These figures clearly show that microbusinesses, not large businesses, create the jobs in our economy. And these are businesses that have staying power.4,5,6 They don't just start up and disappear."7,8
The Advocacy analysis of industries -- services, wholesale and retail trade, agricultural services, mining, construction, manufacturing, transportation, and finance, insurance and real estate -- reveals that microbusinesses were the ones that added employees while firms in most of the larger size categories lost workers.
Some key findings of the analysis include:
· The smallest businesses (0-4 employees) created 2.6 million net new jobs. Large companies (500+ employees) created 122,000. All other business size classes lost jobs.
· In manufacturing, only the smallest businesses (0-4 employees) added jobs.
· The greatest growth was seen in the services industry. During the 1989-1991 period, the services sector added 1.9 million jobs. All but 475,000 came from small firms (those with fewer than 500 employees). Approximately 1.1 million came from firms with 0-4 employees.
"The disturbing aspect of these new data is that all the other small business size categories -- those with between 5 and 499 employees -- showed net job losses during this period," said Glover.9 "Without the growth and expansion of the firms with 0-4 employees, the recession would have been much worse, and there could have been over 2 million more unemployed workers."10
1 "The data were developed and provided by the Bureau of the Census, not Dun & Bradstreet, which suggests that they are based on Social Security files. They will therefore exclude all businesses that do not file FICA payments, including sole proprietors and the self-employed." -- Reynolds
2 "This claim is another instance of SBA hokum about small-business job creation. The study underlying it classifies all firms born after 1989 in the 0 to 4 size class, regardless of how many employees a firm had in 1991. Gross job creation at new firms is large relative to changes in net employment over the same period. The SBA could not have found anything other than the 'result' that 'microbusinesses' accounted for a large portion of net new jobs." -- Davis
3 "The SBA claim may be hokum, but how much hokum is there in it? It is true that the SBA classified all firms born after 1989 in the 0 to 4 size class, regardless of how many employees a firm had in 1991. However, when it classified firms by the correct firm size category in 1991, it was still the 0 to 4 category that created jobs." -- Acs
4 "There's no way to evaluate this comment about staying power. Assume at least half, perhaps three-quarters, of businesses survive for five years." -- Reynolds
5 "What's the basis of this claim about 'staying power'? The SBA study of census data follows firms only from 1989 to 1991, so how can the study draw any inferences about long-term staying power? Every careful study I know of finds that smaller and younger firms offer less job stability than their larger and older counterparts." -- Davis
6 "What is wrong with short-lived firms if they make an honorable exit and have served a good purpose during their lifetimes? The potential for economic adaptation of the entire system may depend on the potential for higher levels of firm turbulence. God knows, those running the major established business firms don't seem to be able to adapt to change." -- Reynolds
7 "To the extent that a significant share of these are basically unsound self-ownership boutiques, shops, or consultancies triggered as a last resort by the recession and the growing number of displaced workers seeking to find something to do with themselves, we can predict that their longevity is likely to be short." -- Harrison
8 "I am saddened by the image presented by Ben that new firms, 'microbusinesses,' reflect the desperate acts of those unsuited to wage work. Most people trying to start new firms, over 80%, have full- or part-time jobs or are running another business." -- Reynolds
9 "It is possible that the net loss in intermediate-size categories (5 to 499 employees) represents a shift from existing, larger firms that are becoming obsolete and that are being replaced by newer, smaller firms in the same industries." -- Reynolds
10 "This is a ridiculous statement. If for some reason there had been no expansion by firms that the SBA classifies in the 0 to 4 category, then other firms would have expanded more. Suppose some economic or policy change drove mom-and-pop grocery stores out of business. Would people stop eating food and shopping at grocery stores? Of course not. They would shop at larger grocery stores, and employment at larger grocery stores would expand. This is not meant to belittle the economic contribution of new businesses (or small grocery stores, for that matter), but there is no basis for the suggestion that their elimination would have meant 2 million more unemployed people." -- Davis
