Look to the little guy. It’s axiomatic. If companies grow fast, they add people. Small companies do the growing on America’s business scene. To put a lot of out-of-work Americans back to earning paychecks, then, we need to remove barriers to small-business growth. The jobs will follow.
Everyone from President Obama to Ben Bernanke, Federal Reserve chairman, to Robert J. Samuelson, author of “Untruth: Why the Conventional Wisdom Is (Almost) Always Wrong,” has commented recently on the role of small businesses as the nation’s jobs creators.
Here’s why: Small businesses have generated at least 60 percent and as much as 80 percent of net new jobs annually over the past decade.
All new companies are by definition small businesses. Their founders are innovative, optimistic, competitive. But today’s entrepreneurs are not hot shots right out of business school. Instead, many are casualties of the recession who have faith in the turnaround potential of the U.S. economy—so much so that they are starting their own businesses in a time of great economic uncertainty.
Remember what’s been happening over the last decade. Many older companies shrank. They downsized, they rightsized, they merged and acquired and got rid of redundancies—entire departments weren’t needed anymore. Jobs were lost in large numbers. That was occurring before the housing bubble burst and Lehman Brothers closed their doors and Wall Street reeled. In March 2009, at the bottom of the recession, there were 2,913 mass layoffs according to the Bureau of Labor Statistics, which defines a mass layoff as one during which at least 50 people from a single employer lose their jobs.
Yet in the meantime, there was a steady stream of entrepreneurs going into business for themselves and hiring two or five or 10 people. In 2009, the U.S. saw the highest level of entrepreneurship in 14 years, according to the Ewing Marion Kauffman Foundation’s report, the “Kauffman Index of Entrepreneurial Activity.” According to the report, 2009 had “27,000 more starts per month than in 2008 and 60,000 more starts per month than in 2007.” An amazing 558,000 new businesses were started each month in 2009.
Where Job Growth May Occur
More than half of all Americans either own or work for small businesses. That’s a lot of manpower, womanpower and brainpower to put toward solving our economy’s stagnation. Chances are, the startup companies of 2009 will change plans more than once. That’s OK. They’re nimble because they’re small and have no layers of management to slow down decision-making.
So, to which sectors should they be looking, these small companies, if they want to grow fast? Green businesses, health services, education, social networking—these are the sectors that are talked about as being on the rise. But entrepreneurs might also consider industries that added jobs in September 2010: mining, information, management of companies and support services, other services, construction, retail trade, wholesale trade, transportation and warehousing, and scientific and technical services.
As credit becomes more available and businesses sense a return to a better sales climate, small businesses will create new jobs. How many? No one can say. Historically, that has been the way the U.S. economy gained steam. There is strong reason to believe the same will occur in this recovery, if even a small portion of the 2009 startups add to their headcounts.
Robert J. Samuelson recently tackled the topic in his column for Newsweek. “Entrepreneurship won’t instantly cure America’s job deficit, but without it, there will be no strong recovery,” he wrote.