Small Businesses Account for 60 Percent of Job Losses

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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.