Humanities › Issues How Small Business Drives U.S. Economy Small Businesses Provide Jobs for Over Half of Nation's Private Workforce Share Flipboard Email Print Mardis Coers/Moment Mobile Issues The U. S. Government Business & Finance History & Major Milestones U.S. Constitution & Bill of Rights U.S. Legal System U.S. Political System Income Tax & The IRS Defense & Security Consumer Awareness Campaigns & Elections U.S. Foreign Policy U.S. Liberal Politics U.S. Conservative Politics Women's Issues Civil Liberties The Middle East Terrorism Race Relations Immigration Crime & Punishment Canadian Government View More By Robert Longley History and Government Expert B.S., Texas A&M University Robert Longley is a U.S. government and history expert with over 30 years of experience in municipal government and urban planning. our editorial process Facebook Facebook Robert Longley Updated January 02, 2021 What really drives the U.S. economy? No, it is not war. In fact, it is small business -- firms with fewer than 500 employees -- that drives the U.S. economy by providing jobs for over half of the nation's private workforce. In 2010, there were 27.9 million small businesses in the United States, compared to 18,500 larger firms with 500 employees or more, according to the U.S. Census Bureau. These and other statistics outlining small business' contribution to the economy are contained in the Small Business Profiles for the States and Territories, 2005 Edition from the Office of Advocacy of the U.S. Small Business Administration (SBA). The SBA Office of Advocacy, the "small business watchdog" of the government, examines the role and status of small business in the economy and independently represents the views of small business to federal government agencies, Congress, and the President of the United States. It is the source for small business statistics presented in user-friendly formats and it funds research into small business issues. "Small business drives the American economy," said Dr. Chad Moutray, Chief Economist for the Office of Advocacy in a press release. "Main Street provides the jobs and spurs our economic growth. American entrepreneurs are creative and productive, and these numbers prove it." Small Businesses Are Job Creators SBA Office of Advocacy-funded data and research shows that small businesses create more than half of the new private non-farm gross domestic product, and they create 60 to 80 percent of the net new jobs. Census Bureau data shows that in 2010, American small businesses accounted for: 99.7% of U.S. employer firms;64% of net new private-sector jobs;49.2% of private-sector employment; and42.9% of private-sector payroll Leading the Way Out of the Recession Small businesses accounted for 64% of the net new jobs created between 1993 and 2011 (or 11.8 million of the 18.5 million net new jobs). During the recovery from the great recession, from mid-2009 to 2011, small firms -- led by the larger ones with 20-499 employees -- accounted for 67% of the net new jobs created nationwide. Do the Unemployed Become Self-Employed? During periods of high unemployment, like the U.S. suffered during the great recession, starting a small business can be just as hard, if not harder than finding a job. However, in March 2011, about 5.5% -- or nearly 1 million self-employed people – had been unemployed the previous year. This figure was up from March 2006 and March 2001, when it was 3.6% and 3.1%, respectively, according to the SBA. Small Businesses Are the Real Innovators Innovation – new ideas and product improvements – is generally measured by the number of patents issued to a firm. Among firms considered “high patenting” firms – those being granted 15 or more patents in a four-year period -- small businesses produce 16 times more patents per employee than large patenting firms, according to the SBA. In addition, SBA research also shows that increasing the number of employees correlates with increased innovation while increasing sales does not. Do Women, Minorities, and Veterans Own Small Businesses? In 2007, the nation’s 7.8 million women-owned small businesses averaged $130,000 each in receipts. Asian-owned businesses numbered 1.6 million in 2007 and have average receipts of $290,000. African-American-owned businesses numbered 1.9 million in 2007 and have average receipts of $50,000. Hispanic-American-owned businesses numbered 2.3 million in 2007 and have average receipts of $120,000. Native American/Islander-owned businesses numbered 0.3 million in 2007 and have average receipts of $120,000, according to the SBA. In addition, veteran-owned small businesses numbered 3.7 million in 2007, with average receipts of $450,000. Effects of the COVID-19 Pandemic on Small Business No event in U.S. history has had such a destructive impact on American small businesses as the coronavirus COVID‐19 pandemic that began in late January 2020. The effects of the many state and local customer access limits, social-distancing orders, and temporary closure mandates enacted in hopes of stopping the spread of COVID‐19 were especially disastrous for small business owners. According to the April 2020 Current Population Survey from the U.S. Bureau of Labor Statistics, the number of active small business owners in the United States fell by 3.3 million or 22% during just the first three months of the pandemic, from February to April 2020. The drop in active businesses was the largest in history, with minority-owned businesses suffering the worst. Black-owned businesses were hit especially hard experiencing a 41% decrease in business activity. Latinx-owned business activity fell by 32%, and Asian business owner activity dropped by 26%. Immigrant-owned business owners experienced substantial losses of 36%. Female-owned businesses were also disproportionately hit suffering a 25% drop in business activity. Economic analysts fear that many of the temporary small business closures will become permanent because of the inability of owners to pay ongoing expenses and survive the shutdown, despite federal government efforts like the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Enacted in March 2020, the CARES Act provided over $2 trillion in loans, grants, and enhanced unemployment compensation benefits intended to help business owners and employees survive the public health and economic impacts of COVID-19.