Especially since the Great Recession of 2008, consumers and future employees of the U.S. workforce have been turning to small businesses to fulfill their spending and employment needs. It should come as no surprise, then, that small businesses are truly the heart of the American economy.
“Small businesses often lead a community’s economic growth. Small businesses tend to be more flexible than and just as innovative as their larger counterparts. Perhaps more importantly—they work in their businesses, live near their businesses, provide jobs, add to the tax base, participate in community activities, support local charities and share community concerns,” reports Hoosier Heartland ISBDC business advisor Monty Henderson in a July 2015 article in Indiana Small Business Development Center.
Employment market share
A number of reports through the years have made clear the importance of small businesses to our economy, especially with regard to the employment market.
A 2014 report by the Bureau of Labor and Statistics showed that while 41 percent of net job growth in third quarter 2013 came from companies with 500 or more employees, an almost equal 40 percent of total net job growth came from businesses with one to 49 employees.
The report also notes that these small businesses accounted for 50 percent of the employment market in retail, while businesses with 50 to 249 employees accounted for less than 40 percent, adds Kleinhenz. What’s more, businesses with 250 to 499 employees accounted for just over 10 percent and businesses with 500 or more employees accounted for less than 5 percent of the total retail employment market. With half of the employment market share taken up by small businesses alone, it’s evident that these businesses are the engine powering job creation in the U.S.
“You cannot overlook the role of small businesses if you want to understand the current state of the U.S. economy. Never underestimate their power; small-business owners are entrepreneurs and innovators, and, most importantly, support the vitality of our communities,” Kleinhenz says.
Data reported by the Small Business Association (SBA) further highlights the size of the employment market that small businesses represent.
For one, since the 1970s, small businesses have provided not only 55 percent of all jobs, but also 66 percent of net new jobs.
Additionally, the SBA reports that while the rate of downsizing in corporate America has increased, so has the opening rate of small, startup businesses. In fact, since 1982, the number of U.S. small businesses has increased by 49 percent. Moreover, while big businesses have cut more than 4 million jobs since 1990, small businesses have added 8 million new jobs to the U.S. employment market.
Other economic factors
Small businesses aren’t just crucial to the economy for their job creation; they are major players in retail sales and even production.
In fact, the SBA cites that 54 percent of all U.S. sales are derived from 28 million small businesses in the country, with an additional 40 percent of all retail sales derived from the 600,000 or so franchised small businesses in the U.S.
Furthermore, a study conducted by Paychex found that small businesses in the U.S. produce 13 times the patents produced by big businesses.
Even large corporations are starting to realize the necessity of small businesses for the economy. Goldman Sachs, for instance, has begun initiatives to support 10,000 small businesses in their area, giving these businesses the tools they need to create economic opportunity along with job growth to become more sustainable and profitable.