Posted by: John Tozzi on October 17, 2011
We frequently hear that small businesses create most new jobs in the U.S.: 65 percent is the familiar stat. Less often discussed is what’s meant by “small business.” Carl Bialik has a clear analysis in the Wall Street Journal of how you get to that 65 percent number.
The U.S. government counts companies with fewer than 500 employees as “small businesses” for this calculation. That includes more than 99 percent of private employers. How you measure makes a big difference. For example, Bialik writes:
The European Union defines small- and medium-size enterprises as those with fewer than 250 employees. Small businesses, a subcategory, have fewer than 50 employees, according to European Commission spokesman Andrea Maresi. Define small businesses that way, and they created 32% of net new U.S. jobs since September 1992, when collection of such data began.
The question of how many jobs small businesses create turns on methodology and definitions: switching from American to European size standards cuts the number in half. Politicians and interest groups can play all sorts of games with the numbers. (For example, what constitutes a “small” business for tax purposes is a whole other debate.)
Read the WSJ piece for a good understanding, or for even more detail take a look at this paper (PDF) from last year by SBA economist Brian Headd.