About 8,350 companies are believed to be newly eligible for the small-business designation, according to a Bloomberg Government article published in The Washington Post. Among those affected, 958 engineering and technical services contractors that were previously considered large businesses will now be considered small. In 2011, $220 million in federal contracts for engineering and technical services were reserved for small businesses.
Census Bureaudatashow that 78 percent of businesses have no employees. Among those with employees, three-fifths have one to four employees, and 98 percent have fewer than 100. However, half of all workers are employed by large companies (those with more than 500 employees), and a third work for very large companies (those with more than 5,000 employees).
Historically, Congress’s main interest in the small-business sector has been its job-creating potential. This has been the case since 1981, when the economist David Birch publishedan articleasserting that small businesses created the vast bulk of jobs in the economy. Since then it has been an article of faith among policy makers that private-sector job creation strategies should concentrate on small businesses.
Actually, what Mr. Birch really showed is that young companies are more likely to be job creators than mature companies. He also showed that such companies are highly volatile in terms of net job creation; many of the jobs that are lost are lost among recent start-ups.
More recentresearchby the economists John Haltiwanger, Ron Jarmin and Javier Miranda confirms that this is still the case.
Insofar as job creation is concerned, another important factor is establishment size. Anew studyfrom the Bureau of Labor Statistics finds that over the last 10 years new companies have tended to be smaller and stay smaller than those in the past.
In the 1990s, new start-ups averaged 7.6 employees, falling to 6.8 in 2001 and just 4.7 in 2011. Among all businesses, establishment size fell from an average of 17.5 in 2000 to 16.6 in 2003 and 15.7 in 2011.
The B.L.S. has also found that the number of new establishmentshas fallensharply since 2006. The number of those less than one year old fell to 505,473 in 2010 from 667,341 that year. The number of jobs created by such companieshas fallento less than 2.5 million in 2010 from 4.7 million in 1999.
If the pace of new businesses and job creation by such businesses were at 1990s levels, we would have created some two million additional jobs this year.