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Small Firms, Employment, and Federal Policy

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New Small Firms Account for a Disproportionate Share of Net Job Growth, March 2012

  • “Although the most recent recession ended more than two years ago, the recovery has been slow and the economy remains in a severe slump. From December 2007 (when the recession began) to February 2010 (when the number of people on business payrolls was at a low point), the U.S. economy lost 8.7 million jobs, on net, on a seasonally adjusted basis. From February 2010 to February 2012, only 3.5 million jobs were created, on net, on a seasonally adjusted basis. The Congressional Budget Office (CBO) projects that, under current law, employment will grow at an average rate of about 2 million jobs per year over the next few years. At that rate, employment will not reach its prerecession peak until the middle of the decade. Against that backdrop, policymakers, analysts, and the public continue to express concern about the prospects for job creation. It is widely believed that small firms promote job growth. In fact, small firms both create and eliminate far more jobs than large firms do. On balance, they account for a disproportionate share of net job growth—however, that greater net growth is driven primarily by the creation of new small firms, frequently referred to as start-ups, rather than by the expansion of mature small firms.”
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