How Small Business Drives U.S. Economy

Provides Jobs for Over Half of Nation's Private Workforce

Owners of small bakery with their products
Small Business Owners Should Not Fear SBA Loan Myths. Mardis Coers/Moment Mobile

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; and
  • 42.9% 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. 

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Longley, Robert. "How Small Business Drives U.S. Economy." ThoughtCo, Sep. 8, 2016, thoughtco.com/how-small-business-drives-economy-3321945. Longley, Robert. (2016, September 8). How Small Business Drives U.S. Economy. Retrieved from https://www.thoughtco.com/how-small-business-drives-economy-3321945 Longley, Robert. "How Small Business Drives U.S. Economy." ThoughtCo. https://www.thoughtco.com/how-small-business-drives-economy-3321945 (accessed November 23, 2017).