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Do Small Businesses Create Jobs?
By Marc Tracy
In the course of a column about employer health-insurance mandates--we promise, we will refer to this in a future post--the WaPo's business columnist Steve Pearlstein refers to the notion that small businesses are responsible for the majority of job growth as a "myth". "In terms of new job creation, the data show that most of it happens in a small number of very fast-growing companies that are no longer what most of us would consider small," he argues.
Noting that he was once an editor at Inc., where he "worked on some of the articles in which some of the seeds of this myth were planted," Pearlstein adds: "a lot of small-business job growth has also been driven by the decision of big businesses to outsource many tasks that they used to do in-house. In an economic sense, jobs haven't been so much 'destroyed' and 'created' as they have been shifted from one company to another." Pearlstein doesn't provide stats; but we do know him to be a trustworthy guy who tends moreover to have the right policy instincts.
Still, we can't help but juxtapose a recent post from The New Entrepreneur's John Tozzi, in which he uses Small Business Administration figures to chart how small-business jobs are affected during good times and bad. Tozzi predicts that the sweet spot of job creation in the next year or two will be less businesses with 1-19 employees and more those with 20-500, which are frequently known as "medium-sized".
Tozzi does, however, point out that there is one type of business with 1-19 employees that is witnessing substantial "job" growth: namely, those businesses with exactly one employee. One SBA economist predicts that 2008 alone will have seen 1.7 million new non-employee (i.e., single-person) businesses created, which makes it a far more productive year for that type of business than years in which the economy was actually, you know, good.
We wrote last week about the U.S. Census's finding a similar trend. Clearly recessions do a good job at encouraging people to strike out on their own. Which means two things: one, that small businesses are better at creating "jobs" than some statistics may first show, given that the "employees" of non-employee businesses may not count as "jobs created" even when, for all intents and purposes, one more person is being put to work. And secondly, it means that there are going to be a whole heap of new non-employee businesses who may find the coming years a good time to grow themselves, and start hiring, thereby juicing small businesses' job-creating numbers anyway. Statistics may not lie, but they aren't always the full story, either.
Comments (1)July 8, 2009 4:15 PM
Comments (1)
This is something I have been thinking about recently myself. Obviously in economic downturns/lulls/recessions or whatever you want to call them, big business gets hit hardest.
The more business you do during the good times, often equates to the more business you lose during the bad times.
I'd suggest that small business takes on more employees during the early stages of economic recovery. However big business would then surpass small business with more employees later down the track.
It often costs small business less to hire new staff than it does for big business. This is due to the training many big businesses require their employees to go through. As a result, big business waits that little bit longer before they commit to more employees in their business.
Posted by Jason - SimpleWeb | July 9, 2009 4:10 AM
Posted on July 9, 2009 04:10