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Do small businesses create the majority of the jobs in the United States?

I guess it would depend on one's definition of small business, but stipulating that the definition is the one used by politicians when they make that claim, I wonder if it is true.

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    Just an ignorant comment. I had an S-Corporation for a while. It isn't the level of tax that hurts. It's the endless headaches - accounting methods, health insurance, pension plans, depositary payments, credit lines. You gotta hire somebody just to handle all that. – Mike Dunlavey Apr 21 '11 at 0:05
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    Documented or undocumented jobs? – Job Apr 21 '11 at 17:55
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Probably the most definitive source for this information would be the US Bureau of Labor Statistics. Their "Distribution of private sector employment by firm size class" Shows the following for the most current (Q1 2010) numbers:

 Firm size  % of total jobs
   1 to   4        5.31
   5 to   9        6.00
  10 to  19        7.42
  20 to  49       10.60
  50 to  99        7.96
 100 to 249       10.29
 250 to 499        7.09
 500 to 999        6.88
1000 and above    38.41

That shows the majority working for small businesses only if we define "small" as meaning up to 499 employees. I think that's a bit larger than most people would normally think of as "small", but I guess given the raw data, you can draw your own conclusions about what descriptions to use.

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    In the US, "small" is up to 100, and "medium" up to 500 employees, normally. Thus, "small and medium enterprises" do provide the majority of jobs. – Jonas Apr 21 '11 at 4:00
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    this is TOTAL employment, not "creation" (which I think refers to new jobs being added, vs a position that already existed yesterday) – user5341 Apr 27 '11 at 16:48
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    @DVK: I took it as referring to the total number of jobs that exist, rather than just jobs newly created in some specific period of time. Numbers for the latter are available from: bls.gov/web/cewbd/table_a.txt. That favors small businesses much more strongly (5.8% of new jobs vs. 1.0%), at least during that particular period of time. I haven't looked enough to be sure, but would guess that small businesses show higher volatility, losing more jobs, more quickly when things go poorly, and gaining more jobs more quickly during a recovery. – user2046 Apr 27 '11 at 17:44
  • your supposed causation logic looks legitimate :) My main point was that some people consider "jobs created" to be defined as "new jobs" since last time, not "all jobs in existance" – user5341 Apr 27 '11 at 17:53
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    Since these figures consider only private sector jobs, you would need substantially more than 50% to claim that small businesses are responsible for "the majority of jobs". – DJClayworth May 26 '11 at 14:31
3

Some economists have looked specifically at this question...

In the paper "Small business and job creation: dissecting the myth and reassessing the facts" (from Small Business Economics in 1996, link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=420303 but full paper behind a paywall)

Their conclusions (from only the U.S. manufacturing sector between 1972 and 1988) were that:

  1. Large firms dominate both job creation and destruction

  2. Gross job creation and destruction are higher for smaller firms

  3. Net job creation rates don't show a strong relationship to firm size

So it sounds like, at least for manufacturing, gross job creation may be higher for small firms, but gross job destruction is also higher, meaning that net, there's not an advantage for small businesses.

  • I don't understand how statements 1 and 2 can be reconciled. If large firms dominate job creation, mustn't gross job creation be higher for them? – DJClayworth May 26 '11 at 14:33
  • Not necessarily - since gross job creation and destruction are larger for small firms net job creation is the opposing measure in which large firms dominate. From the perspective of a manufacturing worker, the period of time spent in jobs for large firms is likely to be higher than that for small firms - to put it in another way, small firms create lots of jobs that don't stick around. – FlyingSquidwithGoggles May 27 '11 at 17:41

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