The Alpha and Omega of Jobs

I work for a small business owner. He employees about 13 people, of which perhaps only four or five consistently work thirty hours or more in a given week. He owns only one establishment and on average creates, maybe, two or three jobs a year. Conversely, he also destroys, maybe, two or three jobs a year. According to the Congressional Budget Office he runs one of the culturally lauded “small firms” in this country that, on net, generate jobs at higher rates than large firms. However, it’s not quite as simple as “small business is the engine of job growth in the country”…

From a CBO report released this week (emphasis added):

[…} that relationship arises primarily because new firms, which typically start out small, create a comparatively large share of net new jobs. Conversely, older, more established small firms create a comparatively small share of net new jobs. Thus, even though observers sometimes cite small firms as the engine of job growth, the more accurate view is that new firms are a particularly important source of job growth.

So it’s not quite small business in general that accounts for the lion’s share of net new job growth, but new small business. But of course it’s not just new small business, because of this (again, emphasis added):

Employment shares at smaller firms stay roughly constant over time because their higher job creation rates are offset by nearly equivalent rates of job destruction and because fast-growing small firms “graduate” into larger firm-size categories.

And the corresponding chart:

The small business sector, and it’s relationship to employment, is more complicated than the stereotypically guttural “small business good, ’nuff said” jargon that I hear so often. So here’s the breakdown: It’s not just small business, it’s new small businesses that don’t go under, have a desire to expand and actually do expand.

I know this information has been related elsewhere. This is just a short post I wanted to throw out there after reading the report and realizing I had a contemporary experience with the CBO’s data. Like the small business owner I work for, most small firms that continue to survive after startup don’t have a desire to expand. They’re satisfied enough with the profit they make utilizing roughly the same number of employees year after year – the alpha and omega of the jobs picture in this country.

 

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