Worry about young businesses, not small businesses

at 12:28 PM ET, 10/17/2011

Nice chart from Jared Bernstein:

That tall blue line on the left? That’s showing you that most businesses in America are tiny. One to four workers. The red and green lines on the right? Those are showing you that most workers are employed at businesses that are huge. Nothing about this should be surprising: Of course there are more small firms than big ones, and of course the big firms employ more people than the small ones.

Bernstein calls this “the most commonly misunderstood fact about the job market,” and he may be right. You often hear that small businesses are the only businesses that really add news jobs. Careful economic research has shown this isn’t true. Young businesses are really the only businesses that add news jobs. It’s their age, not their size, that matters.

But the fact that most businesses are small businesses means, in practice, that small businesses are extraordinarily politically powerful, as there are lots of them and they are everywhere. Every single congressional district in the country hosts the headquarters of dozens or hundreds or thousands of small firms. The same can’t be said for large firms, which are often quite concentrated in particular areas.

 
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