about how small business (defined by the federal government as firms having fewer than five hundred employees) is more responsible for driving job creation compared to larger businesses, and this is indisputably true. According to the U.S. Small Business Administration (SBA), small businesses account for a full 50 percent of total U.S. employment. Moreover, small businesses account for more than two-thirds of net new job creation.
I know firsthand the importance of small business in employment and job creation: 80 percent of the members of the Consumer Electronics Association are small businesses, and the International CES is similarly dominated by small businesses. But yet, company size is not the full story of job creation.
A 2010 study by the prestigious National Bureau of Economic Research concluded that only certain types of small business are the primary job creators:
There’s been a long, sometimes heated, debate on the role of firm size in employment growth . . . The widespread and repeated claim . . . is that most new jobs are created by small businesses . . . However, our main finding is that once we control for firm age there is no systematic relationship between firm size and growth. Our findings highlight the important role of business startups and young businesses in U.S. job creation. Business startups contribute substantially to both gross and net job creation. 20
Similarly, another 2010 study from the Kauffman Foundation “shows that without startups, there would be no net job growth in the U.S. economy. This fact is true on average, but also is true for all but seven years for which the United States has data, going back to 1977.” The report concludes:
All other ages of firms, including companies in their first full years of existence up to firms established two centuries ago, are net job destroyers . . . in terms of the life cycle of job growth, policymakers should appreciate the astoundingly large effect of job creation in the first year of a firm’s life. 21
The evidence of the job creation power of start-ups is right in front of our eyes and those of our policy makers. The implication is that government should be doing all it can to incentivize start-ups, as opposed to spending billions on subsidies and bailouts for existing large firms that, in the end, will not lead to one net American job. As summarized recently by Harvard Business School Professor Bill George:
Many of the great job creators of the past 25 years are companies that were barely visible in 1980 or even nonexistent: Target, Home Depot, Starbucks and Amazon in the retail field; Apple, Intel, Microsoft, Dell, Google, Oracle and Cisco Systems in information technology; and Genentech, Amgen, Stryker and Medtronic in medical technology. All of them were founded by entrepreneurs and are run by innovative leaders. Their ingenuity created the jobs boom in those years and enabled them to dominate global markets for their products. 22
Moreover, the direct employment generated by companies like this doesn’t measure their full impact. For example, Apple directly employs thousands of Americans. In addition, it indirectly creates job opportunities for many more, with hundreds of thousands of unique iPhone, iPod, and iPad, applications created outside Apple. More, large U.S. companies spend an average of $3 billion on services from small companies, according to a 2010 study by the Business Roundtable.
So the more complete story of job creation is that large companies, smaller businesses, and business start-ups are each an important generator of jobs, and innovative start-ups in particular are the most powerful generators. These start-ups are built by entrepreneurs who have a better idea, the courage to take calculated risks, the ability to build a great team, and the leadership to build a great company. Entrepreneurs, even those who may fail, even many times, are a rare breed and a national treasure. For our economic future, our
I know firsthand the importance of small business in employment and job creation: 80 percent of the members of the Consumer Electronics Association are small businesses, and the International CES is similarly dominated by small businesses. But yet, company size is not the full story of job creation.
A 2010 study by the prestigious National Bureau of Economic Research concluded that only certain types of small business are the primary job creators:
There’s been a long, sometimes heated, debate on the role of firm size in employment growth . . . The widespread and repeated claim . . . is that most new jobs are created by small businesses . . . However, our main finding is that once we control for firm age there is no systematic relationship between firm size and growth. Our findings highlight the important role of business startups and young businesses in U.S. job creation. Business startups contribute substantially to both gross and net job creation. 20
Similarly, another 2010 study from the Kauffman Foundation “shows that without startups, there would be no net job growth in the U.S. economy. This fact is true on average, but also is true for all but seven years for which the United States has data, going back to 1977.” The report concludes:
All other ages of firms, including companies in their first full years of existence up to firms established two centuries ago, are net job destroyers . . . in terms of the life cycle of job growth, policymakers should appreciate the astoundingly large effect of job creation in the first year of a firm’s life. 21
The evidence of the job creation power of start-ups is right in front of our eyes and those of our policy makers. The implication is that government should be doing all it can to incentivize start-ups, as opposed to spending billions on subsidies and bailouts for existing large firms that, in the end, will not lead to one net American job. As summarized recently by Harvard Business School Professor Bill George:
Many of the great job creators of the past 25 years are companies that were barely visible in 1980 or even nonexistent: Target, Home Depot, Starbucks and Amazon in the retail field; Apple, Intel, Microsoft, Dell, Google, Oracle and Cisco Systems in information technology; and Genentech, Amgen, Stryker and Medtronic in medical technology. All of them were founded by entrepreneurs and are run by innovative leaders. Their ingenuity created the jobs boom in those years and enabled them to dominate global markets for their products. 22
Moreover, the direct employment generated by companies like this doesn’t measure their full impact. For example, Apple directly employs thousands of Americans. In addition, it indirectly creates job opportunities for many more, with hundreds of thousands of unique iPhone, iPod, and iPad, applications created outside Apple. More, large U.S. companies spend an average of $3 billion on services from small companies, according to a 2010 study by the Business Roundtable.
So the more complete story of job creation is that large companies, smaller businesses, and business start-ups are each an important generator of jobs, and innovative start-ups in particular are the most powerful generators. These start-ups are built by entrepreneurs who have a better idea, the courage to take calculated risks, the ability to build a great team, and the leadership to build a great company. Entrepreneurs, even those who may fail, even many times, are a rare breed and a national treasure. For our economic future, our
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