Economists say big talk about small businesses is wrong

Mitt Romney says they’re “job creators” and vows to come to their aid as president. Newt Gingrich visited them on his “jobs and growth” bus tour. President Barack Obama calls them “the engine of our economy.” If there’s one thing Republicans and Democrats agree on, it’s that small business is the answer to what ails the economy. On these myriad small bundles of entrepreneurial energy, they say, ride the nation’s hope for lower unemployment and faster economic growth. But the work of several economists suggests that most small businesses are not particularly adept at creating jobs, at least not the best jobs, and that their role in generating national wealth has been exaggerated. The problem is that not all small businesses are created equal. Businesses just getting off the ground contribute most to the country’s job growth, but older small businesses cut as many jobs as they add. Think Bill Gates and Paul Allen huddled together late night developing Microsoft—versus the corner liquor store. “I don’t want to pick on dry cleaners and restaurants and small manufacturing firms, but they’re not a big source of job creation,” says John Haltiwanger, an economist at the University of Maryland. Politicians like to say that small companies create two of every three jobs in a given year. That’s less impressive when you consider that almost all of the 6 million companies in the United States—99.9% of them—are small businesses, with fewer than 500 workers. The Associated Press has the full story and much more statistical data here.