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How Many Jobs Do Small Businesses Create? Depends What 'Small' Means

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.

Reader Comments

Winning Workplaces

October 21, 2011 12:30 PM

Very true, John. Thanks for addressing that distinction. Our nonprofit has run a small workplace competition since 2003 and in all years but one, we aligned our top end employer size criteria with the SBA (500 employees max). But notably in terms of the "how many jobs" point you raised, we recently wrote a blog post based on researching the 2011 applicants for our award (including firms from across North America) which found that the percent of jobs growth has greatest among firms typically classified as "startup" or closer to that early phase: those in business for no more than 5 years. From 2008-2010 those firms increased their headcount by 49%, while the "growth through mature" phase firms did so by 36%.

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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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