Small Businesses in Recent Recoveries

The Small Business Sector in Recent Recoveries

Michael J. Chow and William C. Dunkelberg

First published August 2011

Small businesses play a vital role in the U.S. economy. These firms produce half of private GDP, employ half the private workforce, and are the source of most job creation in the U.S., accounting for roughly two-thirds of new net private sector jobs over the past two decades.1 The importance of small firms to production and job creation makes their health fundamental to economic growth. Data from the National Federation of Independent Business’s (NFIB) 350,000 member businesses indicate that in the current recovery period, these firms are suffering from unusually low levels of sales and earnings, investing less, and hiring fewer workers than in previous recoveries, exacerbating the nation’s unemployment situation and contributing to a lackluster rebound from the most severe U.S. recession since the Great Depression. Statistics on the small business sector are not readily available, but the NFIB data suggest that this sector is dramatically underperforming. Because half of the economy is not growing, we have not enjoyed the kind of growth experienced in past recoveries.

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