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Small Businesses Responsible for Nearly All New Jobs

A new annual report sheds light on the impact entrepreneurs have on the overall economy.
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Businesses with fewer than 20 employees account for 90 percent of all U.S. firms and are responsible for more than 97 percent of all new jobs, according to a new report by the Small Business Administration.

This is just one statistic from a recently published annual report by the Small Business Administration Office of Advocacy based on Census data  from 1988 to 2004, the most recent year available. The detailed figures quantify various indicators among small businesses, including job creation, business births and deaths, industry growth, and regional differences.

One new element this year is the expansion of state specific data, not just for the most recent statistics but also going back to the mid-1990s. "We're able to segment the market by state into urban and rural areas," which gives an indication of each region's impact on the economy, according to SBA economist Brian Headd.

For example, the states with the most number of new firms in urban areas in 2003-2004, included California, Florida, New York, and Texas. In rural areas, the largest growth was seen in Texas and Missouri.

Overall, small businesses grew more in 2003-2004 than in the previous year as a result of an increase in the number of new firms and little change to the number of firm closures, Headd said.

Small businesses also contributed the most in terms of employment. "Job generation by firm size showed that the bulk was from firms with less than 20 employees," said Headd. Those companies accounted for a net 1,626,793 jobs in 2003-2004, 97.1 percent of all new jobs.

However, on the whole, it is hard to track trends by looking at individual years, according to Headd. "I've noticed that year to year change is very small," he said. "The data obviously follows what's going on in the macro-economy."

Certain "hot cities" like Las Vegas and Orlando, have experienced population increases in recent years, and small-business growth in those regions mirrors the overall expansion, Headd said. As another example, when the national economy thrives the average company size tends to increase.

New and existing companies stand to benefit from the data by identifying potential opportunities in specific industries or geographic regions, according to Headd. Researchers might also find the data useful in recognizing economic and regional trends, he added.

"Policymakers can use it to understand what kind of commerce is occurring in their backyard," especially when framing new laws and regulations, Headd said. "This allows them to understand who would be impacted by their actions."

All data can be found on the SBA Office of Advocacy Web site at www.sba.gov/advo.

Last updated: Aug 16, 2007




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