Small businesses have historically contributed disproportionately to employment growth. Research suggests that most of this modest advantage takes place during periods of relatively high unemployment (see Moscarini and Postel-Vinay 2012). However, during the recent recession and recovery, that small business advantage eroded. This Economic Letter explores some of the reasons for this relatively weak employment growth among small businesses.
How hard were small businesses hit during the Great Recession?
Before the recent recession, small businesses—those with less than 50 employees—generally contributed more than their share to employment growth (see Haltiwanger, Jarmin, and Miranda 2013 and Neumark, Wall, and Zhang 2011). Between 1992 and 2007, small businesses averaged 30% of total nonfarm private employment in the United States. However, they accounted for about 35% of total net employment growth over those years. Paradoxically, the small business share of total employment shrank slightly during this period. The reason is that some small businesses expanded enough to no longer be counted as small. When they grew to larger status, their workforces were no longer counted as small business employees.
Read more: Federal Reserve Bank of San Francisco Small Businesses Hit Hard by Weak Job Gains