Thursday, October 4, 2012

Small Business Job Creation?

In the political debates we continue to hear small business praised as the real job creator—as shown in last night’s encounter. The problem here is how to define “small business.” I will propose a three-fold division—which can then be further collapsed. Small business then means those employing 1 to 99 people, mid-size business as those employing 100 to 999, and big business as employing 1,000 people or more. If we then say that “mid-sized isn’t small, and neither is big business,” then we can derive small and big, big being a combination of mid-sized and the bigger.

I will show here a variant of a graphic I published on LaMarotte back in September of 2010. It shows job creation data for the period 1992 through 2005 from the Bureau of Labor Statistics (link). The series I used has not been updated in the same way since. The graphic here shows net quarterly gains for the period 3Q 1992 through 1Q 2005:



Note here that these are net gains, thus gains when job losses have been reflected. Note also that the two lightly colored bars, for the mid-sized and the big business category, together form the second bar.

In this expansionary period, bigger businesses created more jobs than small business. The following tabulation brings the relevant details:

Average Quarterly Change in Jobs, 3Q 1992 to 1Q 2005

Firms by Employment Size

1 to 99
100 or more
100 to 999
1,000 plus
Percent of Total Firms
97.6
2.4
2.2
0.2





Gains (in 000)
4,067
2,599
1,374
1,225
  Percent of gains
61.0
39.0
20.6
18.4
Losses (in 000)
3,879
2,381
1,273
1,108
  Percent of losses
62.0
38.0
20.3
17.7
Net gains (in 000)
188
218
101
117
  Percent of net
46.3
53.7
24.9
28.8

Worth noting here is that small business did create more jobs than the larger categories—but the category also lost more jobs than the others. The large losses wiped out 95 percent of the small business gains—and this was a period of growth. The vast majority of firms is small, to be sure, not quite 99 percent, but close; 2.4 percent of firms produced more jobs than the 97.6 percent. But when it comes to trying to influence the masses, the politicians know whom to praise. 

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