SMALL BUSINESSES AND JOB CREATION
Small businesses account for about half of total private employment. Figure 2 shows that businesses with less than 500 employees account for about 51 percent of private employment. Firms with fewer than 250 employees account for 44 percent of the total, and firms with fewer than fifty employees account for 27 percent of the total.
Figure 1. Small businesses account for about half of total private employment.
Source: Bureau of Labor Statistics, Business Employment Dynamics using firm-level data; U.S. Treasury calculations.
Furthermore, small businesses have created a disproportionate share of jobs since the pandemic, contributing 71 percent of net private job gains since the previous business cycle peak in the fourth quarter of 2019. That is up from a 64 percent share of net new jobs in the Great Recession and ensuing recovery, as shown in Figure 2. Indeed, the smallest firms are playing an especially large role this time. Start-ups created 26 percent of total new jobs (net of firms that closed), up from 19 percent last cycle, while existing firms with fewer than fifty employees created 18 percent, up from 9 percent last cycle. The importance of start-ups this cycle is underscored by the recent surge in new business applications, discussed later in this note.
Figure 2. Small business contributed 71 percent of total job creation this business cycle, up from 64 percent in the prior recession and recovery.
Source: Bureau of Labor Statistics, Business Employment Dynamics (BED); U.S. Treasury calculations.
Notes: The contributions shown are those of various “small business” subcomponents to overall net private jobs gains as measured in the Business Employment Dynamics database, calculated using firm-level data. “Startups less Shutdowns” is job gains from opening firms with fewer than 500 employees minus job losses from closing firms with fewer than 500 employees. Contributions of existing firms are job gains from expanding firms less job gains from contracting firms. Data disaggregated by firm size from the BED are only available through 2023:Q4.
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