Forget Tech Startups. Now 'Microbusinesses' Drive Job Creation

Photograph by Chris Frazer Smith/Gallery Stock

Politicians like to say small businesses drive job creation. Journalists like to call politicians out for using self-serving clichés. That may explain the attention paid last week to a report arguing that Internet companies, not small businesses, are the real job creators.

That report (PDF) was written by Ian Hathaway, an economic adviser to tech startup lobbying group Engine. Not surprisingly, he argues that startups’ role in job creations has been “underrepresented in research on business dynamics and in small business policy.”

Also not surprising: A report (PDF) published on Wednesday by the California Association for Micro Enterprise Opportunity, comes to a different conclusion. What the group calls microbusinesses, meaning ventures with between one and four employees, created 5.5 million jobs between 2004 and 2010, its analysis of government data found. That’s more than any other size-category of business during the same time period. Microbusinesses were the only category to add jobs in 2009 and 2010, when companies with more than 20 workers shed millions of jobs.

“This analysis points to a real strength of the American labor force,” said Cameo Chief Executive Officer Claudia Viek in a statement accompanying the report. “Imagine how much stronger our economy could be if [the U.S.] doubled our investment in micro-business development programs.”

Hathaway and Cameo both used business dynamics statistics from the U.S. Census, but used the data to answer different questions. Hathaway charted the rate of job creation over companies’ life spans, using data from 1990 to 2011. Cameo focused on total jobs created—and destroyed—over a shorter period. Whether any of that explains the differing conclusions is uncertain. More clear: When reading research on the true engines of job creation, consider the source.