Credit Lee Egerstrom of MN2020 with finding this study by the Center for Economic and Policy Research that compares U.S. small business employment with that in 20 other rich nations.
By every measure of small business employment, the United States has among the world’s smallest small-business sectors (as a proportion of total national employment). The lower taxes, less stringent regulations, and freer labor markets in the United States, it appears, have not yielded greater small-business employment here than elsewhere.
That's right. Although it's an article of faith in both parties that small businesses fuel America's job creation and innovation, we're worse than an also-ran in the global economy.
The study looked at:
- self-employment (the U.S. has the second lowest share of self-employed workers at 7.2 percent)
- shares of small business employment in manufacturing (only Ireland (9.6 percent) and Luxembourg (8.5 percent) ranked lower than the U.S. (11.1 percent)
- high-tech fields — computer-related services and research and development —where we ranked second- and third-lowest, respectively (Luxembourg spanked us in both categories)
- and lower-tech services (“restaurants, bars, and canteens”; “real estate activities”; and “renting of machinery and equipment etc.”) where we ranked dead last.
One comforting myth is that businesses are started by entrepreneurs with a design for a better mousetrap or maverick employees who wrote a business plan to exploit an opportunity their employer refused to invest in. These start ups will overcome obstacles and grow into healthy, profitable enterprises that provide good jobs and make the world a better place.
The job statistics will tell you that Minnesota’s smallest businesses (with 1-19 employees) account for about one-quarter of all new jobs annually. Even when its job losses are counted, this segment provides a net gain of jobs about equal to the state’s overall private sector job growth.
A lot of these small business simply deliver basic services and provide
individuals a way to make a living in an economy that increasingly
relies on part time labor and independent contractors. For every
long-time mom and pop store or entrepreneur with a dream to build a
company, there are several spouses supplementing the household income,
displaced executives “consulting” between jobs, and painters,
programmers and truck drivers who don’t know who they’ll be working for
or what they’ll be making next month.
These may represent "new jobs," but they are hardly an engine of economic growth. Nearly three quarters of "small businesses" in Minnesota do not have employees.
I believe the downsizing and outsourcing by larger corporations is responsible in large part for this “job growth.”
Nearly three quarters of small businesses in Minnesota do not have employees. Most of these business owners will tell you the biggest decision they face is whether to hire some help; most never will. The second biggest is whether to offer "benefits" — which means health care and a 401(k) plan.
By outsourcing more work to small businesses, corporations can effectively buy the services without incurring the obligation to provide benefits. We've seen this gambit occur also in the retail sector, where employers use part-time work as a way of avoiding providing health care and other employee benefits.
The CERP study puts this practice in global perspective. In countries where there's national health care, a real barrier to entrepreneurial growth is removed. People are more likely to start businesses — and hire employees — knowing that health care will not be a cost that constrains their growth.
When I started my business I made an early decision to provide employee benefits that were competitive with what big companies offered — because those were our clients, and we wanted to attract talent that was comparable to what a major corporation would hire. That was the right strategic decision for my business at that time, but I know many start ups and sole proprietors who see health care as a major cost that they can't risk funding.
As Lee Egerstrom says:Without a universal health care system that moves insurance costs off the backs of doing business, we will continue to thwart entrepreneurial development and we will continue to encourage large manufacturers and service providers to keep out-sourcing and off-shoring work and jobs.
Unless, of course, companies in those more enlightened countries simply take the business away from us.
