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Home Publications Blogs Beat the Press Small Businesses Account for 60 Percent of Job Losses

Small Businesses Account for 60 Percent of Job Losses

Sunday, 25 May 2014 05:31

There is a popular and ungodly silly line about new businesses being responsible for some very high share of new jobs in the U.S. economy. A version appears in this NYT article on the economic ripple effects of student loan debt. It cites a study showing that recent graduates with large amounts of student debt are less likely to start a business, then adds:

"Considering that 60 percent of jobs are created by small business, 'if you shut down the ability to create new businesses, you’re going to harm the economy,' Professor Ambrose [one of the authors of the study] said."

The problem with Professor Ambrose's comment is that small businesses also account for close to 60 percent of the job loss in the economy. On a gross basis small businesses do create many more jobs than larger firms, but they also are far more likely to go out of business and therefore lose jobs than large firms. On net, firms of all sizes add jobs at approximately the same rate.

This doesn't mean that we shouldn't be concerned about student debt restricting young people's ability to start businesses and in other ways limit their career choices. It does mean that the consequences for the economy may not be as large as implied by this comment. 


Note: link fixed.

Comments (8)Add Comment
written by Jennifer, May 25, 2014 6:33
I'm thinking you mean the headline to read "Small Businesses Do Not Account for 60 percent of job losses
I was being sarcastic
written by Dean, May 25, 2014 7:53
Small businesses account for 60 percent of job losses in the same way that they count for 60 percent of the job gains. It is a gross rather than a net number. If the small business promoters want to tout the gross job gains then they should be consistent and also note the share of gross job losses.
written by s ken brown, May 25, 2014 8:23
First, I like the headline. Sarcasm gets attention. Second, grads with big debt and a degree that doesn't command big pay by definition wouldn't be business starters out of the gate. Those few with the drive to overcome debt and degree are outliers.
Third - Amen to small business hires and fires. Whether they go broke or not, employees are the first item to jettison when business shrinks and the last thing to add when they expand.
Last - I got marks on my bum from forays into small business as an employee. Remember when someboby's name is on the front door, that's what the business is about.
Small Business Syndrome - You Too Can Be a Hot Dog Vendor with Student Debt Relief
written by Last Mover, May 25, 2014 8:44

Glorification of small business is part of the usual supply side hype invoking creative innovation from entrepreneurs as the answer to today's economic ills.

If only that crushing student debt were lifted a thousand flowers of small business growth would spontaneously bloom into green shoots of recovery wouldn't they, and spread it around as well with more equal distribution of income and wealth.

Another fairy tale of what's wrong with the American economy and how to fix it. What, the predators who run the country are going sit back and allow free markets to function with effective competition from the small business sector?

Even if those students were not suppressed by predatory debt that presumably prevents them from starting a small business that creates jobs, rest assured their efforts would still be suppressed in the usual way by the predators.

The new student business owners would still be paraded around by sock puppets as mocking examples of budding capitalism like so many hot dog vendors who just made their own street vending carts from a 3D printer. And don't forget the huge multiplier effect that ramps up the added value as hot dog vending make a comeback to revitalize the economic wastelands across America.

Do your part America. Join the Small Business Syndrome and support the real winners who can restore the economy to its prior glory. Eliminate predatory debt so real makers can thrive once again as propaganda props for free markets that work as preached by economic predators and their sock puppets.
Wrong link?
written by Chris E., May 25, 2014 10:25
The URL linked in the sentence:

On net, firms of all sizes add jobs at approximately the same rate.

Is the same NYT article. I am curious what study you had in mind to support this.

This one is good:


[...] our main finding is that once we control for firm age there is no systematic
relationship between firm size and [employment] growth.

But I was wondering if there is a meta study you were citing or something.
written by Chris E., May 25, 2014 10:31
Usually it is Last Mover's sarcastic titles that draw the confusion from commenters ;)
Debt Sucks
written by John Parks, May 25, 2014 12:30
"Debt Can Be a Drag"

That could have been Korkki's lede and the complete article.

Everything else is unnecessary word count.
It's a Quant & Qual Question
written by William Hurley, May 25, 2014 6:47
Excellent point and reference, thx for the link.

I've seen similar data - and complaints - from Scott Berkun regarding SMB jobs churn. Flag it as another zombie lie.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.