Will Small Business Lead the Jobs Recovery?

The recession has claimed more than 6 million private non-farm jobs since it began in December 2007. Brian Headd, an economist with the SBA’s Office of Advocacy, has an essay in the agency’s latest newsletter about how small business will lead the recovery in jobs. (The PDF is here.)

One sentence jumped out to me, about how the smallest firms account for a greater share of job losses in this recession than in 2001:

Data from the Bureau of Labor Statistics attributed 35 percent of the net job loss during the first three quarters of 2008 to firms with fewer than 20 employees, whereas in 2001 through 2002 they accounted for less than one percent of the net loss.

Headd notes that the job loss patterns right now look more like the downturn of the early 1990s than 2001. After the 1991 recession, firms with between 20 and 500 employees led hiring, so Headd suggsts that might be the pattern we see going forward.

Also worth noting: Headd estimates a 1.7 million increase in new non-employer businesses in 2008 — people working for themselves without employees. That’s an 8% increase (to more than 23 million firms), much faster growth than the 2% to 3% we see when the economy is strong. The Census numbers are slightly different — they showed an increase of 1 million in 2007. But it’s clear that the ability of people to go into business for themselves — to essentially create their own jobs — is at least somewhat blunting the huge job losses from employers cutting payrolls.

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