job growth from mid-size businesses

We often hear that small businesses are the key to the US economy. Although small is in the eye of the beholder, data from the Bureau of Labor Statistics provides some insight into the extent to which new jobs are created by small, medium or large businesses.

The following chart shows employment gains by firm size for the second quarter of 2011 for the US. Overall, we see that 54 percent of the net new jobs were created in firms with 20-249 workers, with the largest share here 126,000 new jobs in firms with 100-249 workers. The smallest businesses (1-4 workers) lost jobs. Firms with more than 1,000 workers added a net 79,000 jobs over the time period. The new US job change was +562,000.

Another thing that’s important to keep in mind is the fact that the smallest businesses account for the large majority of all US firms. In the following chart I show the share of all firms by firm size.

Here we see that firms with 1-4 workers represent about 54 percent of all firms. At the other end, firms with more than 500 workers represent less than 0.5 percent of all firms.

If we consider firms with 10-250 workers–the leading job growth sources–we see they represent about 11.6 percent of all firms.

What does this mean? By any reasonable interpretation, it is mid-size companies that are generating the bulk of the jobs in the recovery. From an economic development perspective, it means that job growth is more likely to come from mid-size companies that are adding several workers or perhaps a couple of dozen new employees, rather than the smallest or largest businesses.

And what are these businesses most worried about today? According to a recent survey by the National Federation of Independent Business (here):

“The two principal impediments to current small-business growth are business uncertainty and weak sales… The single most important indicator that would renew small-business owner confidence in business conditions is increased sales in their businesses.”

The economic recovery is a demand issue.


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