Small Business Employment in the United States

It is commonly understood that small businesses play a vital role in the economy as a major source of innovation and job creation. But how many Americans actually work for a small business? A recent report released by the U.S. Census Bureau shows that in the United States more than half of all workers in 2012 (51.6% or 59.9 million) were employed at large enterprises for the sixth consecutive year. The share of employment at large enterprises has increased steadily since 2004 when the share was 49.1%. The employment share of very small enterprises decreased from 17.9% in 2004 to 16.6% in 2010 and 2011, before rising slightly to 16.7% in 2012.

California has a slightly higher share of workers employed at small and very small businesses and a marginally smaller share employed at large firms than the nation overall.

The dominance of large enterprise employment varies of industry sector. The nation’s largest industry sector by employment in 2012 was health care and social assistance. Of the 18.4 million people working in this sector, 54% were employed by large enterprises. In the retail sector the share was 64.1%, while the share for utilities was 82.6%, which is  not surprising given the high cost of entry and regulatory structure of the utilities industry.

Of the 21 major private industry sectors, eight had a higher share of workers employed by firms with less than 500 employees. Industries in which small and medium firms dominated  were “other” (personal) services (85.8% with 47.4% employed in very small enterprises); agriculture (85.1%); construction (83.3%); real estate, rental and leasing (69.3%); arts, entertainment and recreation (63.3%); accommodation and food services (59.9%); wholesale trade (59.6%); and professional, scientific, and technical services (59.5%).

In California, large enterprises employed 6.48 million workers in 2012 with an annual average salary of $62,246, while smaller firms employed 6.47 million with an average annual salary of $45,842. Between 2011 and 2012, employment at firms with less than 500 workers increased by 2.2% and by 1.8% at larger firms. Historically, large business have paid their workers higher salaries. The amount of capital that small or young firms have to draw on to pay employees is typically lower than for larger companies. While this is not particularly worrisome in and of itself, the gap in pay between small and large firms appears to be widening, luring talented employees from smaller to larger firms.

The popular perception is that small businesses create most of America’s jobs, but a growing body of research (NBER, Haltiwanger, et al, 2010) shows that a more telling characteristic for predicting job creation is the age of a firm not its size. Smaller firms may create more jobs during their start up period, but many fail during the first five years, destroying about half of those new jobs. The surviving firms continue to ramp up, growing faster than more mature companies and creating a disproportionate share of jobs relative to their size.

Source:  http://www.census.gov/econ/susb/