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_______________________________

Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

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Congressional Research Service (CRS)

 

Small Business Administration and Job Creation

Robert Jay Dilger, Senior Specialist in American National Government

January 30, 2013

http://www.fas.org/sgp/crs/misc/R41523.pdf

[full-text, 21 pages]

 

Summary

The Small Business Administration (SBA) administers several programs to support small

businesses, including loan guaranty programs; disaster loan programs; management and technical

assistance training programs; and federal contracting programs. Congressional interest in these

programs has increased in recent years, primarily because they are viewed as a means to stimulate

economic activity, create jobs, and assist in the national economic recovery.

 

This report examines the economic research on net job creation to identify the types of businesses

that appear to create the most jobs. That research suggests that business startups play a very

important role in job creation, but have a more limited effect on net job creation over time

because fewer than half of all startups are still in business after five years. However, the influence

of small business startups on net job creation varies by firm size. Startups with fewer than 20

employees tend to have a negligible effect on net job creation over time whereas startups with 20-

499 employees tend to have a positive employment effect, as do surviving younger businesses of

all sizes (in operation for one year to five years).

 

This report then examines the possible implications this research might have for Congress and the

SBA. For example, the SBA provides assistance to all qualifying businesses that meet its size

standards. About 97% of all businesses currently meet the SBA’s eligibility criteria. Given

congressional interest in job creation, this report examines the potential consequences of targeting

small business assistance to a narrower group, small businesses that are the most likely to create

and retain the most jobs.

 

Also, the Government Accountability Office (GAO) has recommended that the SBA use

outcome-based program performance measures, such as how well the small businesses do after

receiving SBA assistance, rather than focusing on output-based program performance measures,

such as the number of loans approved and funded. GAO has argued that using outcome-based

program performance measures would better enable the SBA to determine the impact of its

programs on participating small businesses. Given congressional interest in job creation, this

report examines the potential consequences of adding net job creation as an outcome-based SBA

program performance measure.

 

This report also examines the arguments for providing federal assistance to small businesses,

noting that policymakers often view job creation as a justification for such assistance whereas

economists argue that over the long term federal assistance to small businesses is likely to

reallocate jobs within the economy, not increase them. Nonetheless, most economists support

federal assistance to small businesses for other purposes, such as a means to correct a perceived

market failure related to the disadvantages small businesses experience when attempting to access

capital and credit.

 

Contents

Small Business and Net Job Creation .............................................................................................. 1

Economic Research on Net Job Creation......................................................................................... 2

Small and Large Employer Firms .............................................................................................. 2

Startups and Non-startup Employer Firms ................................................................................ 3

Startups by Firm Size ................................................................................................................ 4

The Role of Small Business and Startups in Net Job Creation .................................................. 5

The Role of Surviving Startups in Net Job Creation ................................................................. 7

The Role of High-Impact Businesses in Net Job Creation ........................................................ 9

Summary Discussion ............................................................................................................... 11

Implications for Congress and the SBA ........................................................................................ 12

Using Net Job Creation to Measure SBA Program Performance ............................................ 14

Using Net Job Creation to Target SBA Assistance .................................................................. 16

Concluding Observations ............................................................................................................... 17

 

Tables

Table 1. Employer Firms, Number and Employment, by Firm Size, 2010...................................... 3

Table 2. Number of Employer Firms, by Startups and Non-startups, 2005-2010............................ 3

Table 3. Employment Effect of Employer Firm Startups and Non-startup Expansions, Contractions, and Deaths, 2005-2010 .................................... 4

Table 4. Employer Firm Startups, Number and Employment, By Firm Size, 2005-2010 ............... 4

 

Contacts

Author Contact Information........................................................................................................... 18

 

 

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