Small Business Job Creation

Do government statistics support the contention that small business produces most of the new jobs? Yes, they do.  The Bureau of Labor Statistics’ Business Employment Dynamics program publishes data at regular intervals on employment creation (and destruction, for that matter) by businesses of different size. The BLS entry page for these data is located here. To show the pattern, here is a graphic displaying multi-year data (from 1992 to 2005) obtained from here.

The graphic shows average change in employment by quarter assigned to three size categories here. BLS provides much finer breakdown, but I’ve summed the data by what might be called small, intermediate, and large size firms. In this period, small firms with less than 100 employees produced 46.3 percent of all jobs, midsized firms produced 24.9 and large firms 28.8 percent of jobs.

But let’s not make mistakes, here, based on emotional resonance. Such result are due to numbers, not to the inherent virtues that somehow go with small size. The first category also represents 97.6 percent of all firms (with employees). Midsize-firms are 2.2 percent, the large ones .2 percent of firms. Lots and lots of small companies produce a lot of jobs in a period of expanding business. But it is also noteworthy that just .2 percent of firms produce 28.8 percent of new jobs. Isn’t it? So let us retain our sobriety and contain our breasts from swelling.

And these relationships also have a down-side. In times of economic contraction, small firms also account for the steepest job losses. In every period, including the one graphed above (1992-2005), the net change in jobs (as shown above) is produced by deducting from total job gains total job losses. The percent distribution of job losses in this period is graphed below. It shows that small businesses also lead the losers…

Mind you, in this period gains outpaced losses, hence we have a net positive change for the period. The conclusion is that talking about small business emotionally, as we tend to do in the political arena, produces a wrong impression. Small business is just—business. It isn’t any more or less virtuous or competent or effective than large or even mega-sized versions of the fundamental economic unit. Speaking of the virtues of small business job creation reminds me of the Zen notion of the sound of one hand clapping. That hand is employment creation. But there is also another hand. It is employment destruction. Why don’t we castigate small business for destroying jobs? Equally justified, you know…

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