A Myth About Job Creation: That small businesses are the job generator of America

[Better Believe It]

A Myth About Job Creation
By Ruth Marcus
September 14, 2010

It is taken as gospel among politicians of both parties that small business is the engine of job creation. “We’re starting with small businesses because that’s where most of the new jobs do,” President Barack Obama said earlier this year. “Small businesses are the job generator of America,” echoed Arizona Republican Sen. John McCain.

They’re in good company. George W. Bush and John Kerry, Bill Clinton and Ronald Reagan have all made that claim. Only one problem: These assertions are overblown and simplistic. Take it from a reliable source—the chief economist for the Small Business Administration. “It’s not true,” Zoltan Acs told me when I asked about whether small business is, in fact, the engine of job creation. “It’s half the story.”

Small businesses are job creators; they are also job destroyers, as firms fail. Most start-ups do: About 40 percent of jobs created by start-ups are eliminated in the first five years. Meanwhile, established small businesses—your neighborhood dry cleaners—don’t generate many new jobs.

The chief source of small-business job creation comes from a mere handful of firms—the “gazelles,” in the evocative term of economist David Birch—that start small and prosper. The difficulty is that the gazelles among the herd can be seen only in the rear-view mirror.

And existing firms that change with the times and expand are another major source of new jobs, a phenomenon that the bipartisan fetishization of small business studiously ignores.

Read the full article at:

http://www.truthdig.com/report/item/a_myth_on_job_creation_20100914/

[RaleighNCDUer]

1. Want to look at that again?

"About 40 percent of jobs created by start-ups are eliminated in the first five years."

Well, yeah. That also means that about 60% of jobs created by start-ups last beyond 5 years. And also, even if a start-up fails, during the time it exists, it is providing jobs. I worked at a 2nd hand bookstore that survived just 3 months, once. Well, that meant I was employed for three months. And two weeks later I got a job at a different bookstore.

This myth is not a myth.

Why is the guy whose job is to nurture the development of new, entrepreneurial businesses down-talking his own gig?

ON EDIT:
Doesn't this kind of go counter to this assertion:

"Whereas a typical recession tends to wallop big businesses harder than small ones, this time around “young, small businesses have taken it on the chin more than usual,” "

Small businesses have taken a much harder hit and, lo and behold, we have record unemployment - small businesses are shedding job, and new small businesses are not getting the loans they need, so new jobs are not being created.

[Better Believe It]

2. Was that a high wage, good benefits and generous health insurance bookstore job you had?

Most small business and capitalist wannabe owners simply can't afford to pay very much and offer good benefits.

That's sad but true. You can of course find some exceptions to that general rule.

Your larger employers in transportation, distribution, production and other fields can afford pay a lot more but won't unless forced to by their employees!

[RaleighNCDUer]

4. Of course not, but it was a job - a paycheck.

And this is about job creation, not wage equity. Most people, I believe, get their first jobs at places like this, and only as their resumes improve to they move into the larger, better paying fields.

Huge employers are important too, but you'll never see 5,000 people being laid off from the corner coffee shop because some MBA thinks it will improve the bottom line.

[Lagomorph]

5. So we're better off...

...with with the products and services of a few employers who are too important to fail, rather than with thousands of smaller employers who have to live with the give and take of the market?

One problem with centralized economies is that nobody can think of everything. They make their choices and invest in big production facilities, but when a better idea comes along, they aren't prepared to toss it all out the window and start over from scratch. They've sunk too much money into an idea that has become obsolete.

There just aren't that many products and services that can provide for a 40 year career with full benefits and retirement. Innovation is coming on so fast that it's getting harder to get products to market before they are obsolete.

It's nuts and it makes employment a real bitch, but it seems to be the direction we've taken.

All those dams we built are becoming obsolete. We could replace them with alternative energy sources with tiny footprints. Restoring the rivers and land could cost more than all the revenue they've generated. We can only absorb so much red ink without sacrificing the investment.

[Beer Snob-50]

3. this may not be the tread for this

but i believe that job creation comes from tax breaks to those making under 150k a year. those people are more likly to take the tax cut and go to the movies, or go to the local pizza joint. they will use the money in the local economy.

[SheilaT]

6. It would be interesting to know

just what percentage of small businesses, and of total businesses, employee fewer than say ten employees. How many businesses only employee the owner of the business.

I recently started my own small business, and I will always be my only employee. So I'm certainly not creating any jobs, not even one. I'm simply no longer on the payroll of some other business.