Jobs in Small Businesses
Many interesting claims are made during political campaigns. Many of them are factually correct, but misleading.
One of these is the standard claim that small businesses create 70% of the jobs in the US economy. It is true. But the US economy is one where firms both create and destroy jobs.
The Small Business Administration and the Census have studied jobs created by firm size. The above chart shows the results from this survey that takes into account both jobs created and jobs destroyed by firms with under 500 employees and firms with over 500 employees. It is here.
The study also looked at salaries at small and large firms. It found that in 2003 that the average
pay in large firms was $39,721 while in small firms it was $31,655 or 20% less.
Economic theory posits that individuals pay is a function of their productivity and this salary data implies that productivity in large firms is significantly larger than at small firms. Since small firms accounting for just over 50% of employment this significantly lower implied productivity strongly suggest that small businesses account for well under 50% of GDP. But the SBA commissioned an econometric study that found small firms accounts for well over 50% of GDP.
Their study assumes that large firms purchase sufficient input or components from small firms to offset the smaller share of GDP implied by the lower salaries. Needless to say, I have major problems with this study.