Will Small Business Lead the Jobs Recovery?

Posted by: John Tozzi on July 7, 2009

The recession has claimed more than 6 million private non-farm jobs since it began in December 2007. Brian Headd, an economist with the SBA’s Office of Advocacy, has an essay in the agency’s latest newsletter about how small business will lead the recovery in jobs. (The PDF is here.)

One sentence jumped out to me, about how the smallest firms account for a greater share of job losses in this recession than in 2001:

Data from the Bureau of Labor Statistics attributed 35 percent of the net job loss during the first three quarters of 2008 to firms with fewer than 20 employees, whereas in 2001 through 2002 they accounted for less than one percent of the net loss.

Headd notes that the job loss patterns right now look more like the downturn of the early 1990s than 2001. After the 1991 recession, firms with between 20 and 500 employees led hiring, so Headd suggsts that might be the pattern we see going forward.

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Also worth noting: Headd estimates a 1.7 million increase in new non-employer businesses in 2008 — people working for themselves without employees. That’s an 8% increase (to more than 23 million firms), much faster growth than the 2% to 3% we see when the economy is strong. The Census numbers are slightly different — they showed an increase of 1 million in 2007. But it’s clear that the ability of people to go into business for themselves — to essentially create their own jobs — is at least somewhat blunting the huge job losses from employers cutting payrolls.

Reader Comments

Cj

July 7, 2009 12:12 PM

Peter Bregman recently posted on Harvard Business blog about Why Small Companies Will Win in This Economy". He states, "Small is the new big. Sustainable is the new growth. Trust is the new competitive advantage." I agree with this statement, as a small business owner who is seeing tremendous growth and opportunities connecting with businesses that have been forced to downsize yet maintain production levels. This market present opportunities for the Small Business Owner in niche markets. http://www.bamapps.com

Domenick Celentano

July 8, 2009 1:45 PM

We need to look at how the Internet and in particular Social Networking/Media may be the driving force in the huge increase in non-employer businesses.

Within retail food marketing "local' is the hot button not just for the retailer but for the consumer. Just look at any Whole Foods these days and see the proliferation of signs pointing out the local nature of the product. In particular Whole Foods has a loan program specifically targeted to helping local producers. They know they can lead the way in "local"

And... local is almost ALWAYS a small business...

D

Randy Mitchell

July 8, 2009 3:14 PM

Job losses are certainly spurring many people toward the exploration of self-employment options. My business is seeing record activity because of that.

But, unlike prior downturns, we risk the growth of new jobs through entrepreneurship being choked off if entrepreneurs cannot soon secure sufficient credit, or if they perceive that the government is about to discourage their risk-taking through excessive taxation.

Randy Mitchell
The Entrepreneur's Source

Nick

July 9, 2009 7:10 AM

Small business always carries the ball but it may be different this time since we now have Obama, the new enenmy of small business. We have some banks subsidizing the bailout of big banks (who are still screwing us), small business forced to pay taxes to subsidize outfits like walmart, small car dealers being kicked out, a healthcare plan designed to kill small business, etc. Our business is doing fine but we have killed any expansion plans until the Obama/Pelosi clan is gone. No point in working for them

Lewis Trio

July 9, 2009 9:13 AM

Great Article! Small business has always led the way out of each recession. Because of their flexibility and adaptability they can adjust and market to the public those changes in their business. We at The Franchise Learning Channel has seen a tremendous increase in traffic from people that want to start their own business which translates into more jobs.

Carol LeRoy

July 9, 2009 4:33 PM

As an owner of a spa that was doing great before the recession, I now spend more time focusing on building the company’s foundation so I am positioned to have more growth as the recession ends. My main concern is what to do if the recession does not subside fast enough. The banks are not lending. I have great credit score/history with my bank of 15 years (Bank of America), but that does not seem to matter these days. Hold on tight, pray for the best and prepare for the worst.

Meredith Masse

July 16, 2009 12:06 PM

I would put money on small businesses! And, what small businesses can do NOW is to make sure they have the right people in place to lead them through the rest of this recession and come ahead of the competition on the other side. It's about hiring smarter when it is time to hire and equipping existing employees to excel. As Carol LeRoy says in her comment, it's time to focus on the business' foundation to position for growth. Best place to start is making sure employess are fully engaged, productive, efficient and effective.

Monica Diaz

July 16, 2009 2:29 PM

Maybe it also has to do with the fact that during a recession top talent is more willing to take lower wages or higher risks in working with up and coming small firms! As a small business owner and consultant to large businesses, I get to compare how limber we are and more rapid to adapt to change.

RM - InBoundMarketingPR

October 28, 2009 6:37 PM

I completely agree with Randy, entrepreneualship is the answer to more jobs and boosting the economy. I believe that organizations like http://www.angelsinaction.tv/ will help US entrepreneurs and US economy!!

Exciting times for many small businesses, innovators etc.

Joya Carlton

March 19, 2010 5:41 AM

@ Domenick Celentano
Our product first appeared in Whole Foods yesterday; Brooklyn Brine was founded 9/09:
www.brooklynbrine.com

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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