Resource Library - Vital Statistics

Small business is the engine of economic growth. There are currently over 22 million small businesses in America - and the number is growing rapidly, with over 800,000 started last year, alone. Small business accounts for 99% of all U.S. businesses. It employs 53% of the private work force and contributes over half of the nation's private gross domestic product.

Source:

How important are small businesses to the U.S. economy?

Small firms:

• Represent 99.7 percent of all employer firms.
• Employ about half of all private sector employees.
• Pay more than 45 percent of total U.S. private payroll.
• Have generated 60 to 80 percent of net new jobs annually over the last decade.
• Create more than half of non-farm private gross domestic product (GDP).
• Supplied 22.8 percent of the total value of federal prime contracts in FY 2006.
• Hire 40 percent of high tech workers (such as scientists, engineers, and computer workers).
• Are 52 percent home-based and 2 percent franchises.
• Made up 97 percent of all identified exporters and produced 28.6 percent of the known export value in FY 2004.
• Small innovative firms produce 13 times more patents per employee than large patenting firms, and their patents are twice as likely as large firm patents to be among the one percent most cited.

How many small businesses are there?

In 2006, there were 26.8 million businesses in the United States, according to Office of Advocacy estimates. Census data show that there were 5.9 million firms with employees and 19.5 million without employees in 2004. Applying the sole proprietorship growth rates to the non-employer figures and similar Department of Labor growth rates to the employer figures produces the 26.8 million figure. Small firms with fewer than 500 employees represent 99.9 percent of the 26.8 million businesses (including both employers and non-employers), as the most recent data show there were more than 17,000 large businesses in 2004.

Source: Office of Advocacy estimates based on data from the U.S. Dept. of Commerce, Bureau of the Census, and U.S. Dept. of Labor, Employment and Training Administration.

What is small firms’ share of employment?

Small businesses employ about half of U.S. workers. Of 115.1 million non-farm private sector workers in 2004, small firms with fewer than 500 workers employed 58.6 million and large firms employed 56.5 million. Firms with fewer than 20 employees employed 21.2 million, and firms with 100 employees, 41.8 million. Although small firms create 60 to 80 percent of net new jobs, their share of employment remains steady since some firms grow into large firms as they create new jobs.

Source: U.S. Dept. of Commerce, U.S. Bureau of the Census.

San Luis Obispo County Information:

Source: UCSB Economic Forecast Project

..."The county's economic growth did slow substantially in the past year. In fact, 2007 looks to be the second worst year of the decade, with less than 1 percent real growth. Job growth was also weak, with only 127 net new County jobs. Not all sectors were weak though, the Other Services sector, with over 500 new County jobs, was by far the strongest, even if the 500 new jobs represents only a.1.3 percent growth rate. In terms of percentage growth, the long-dormant Information sector, with a 5.2 percent job growth rate, is finally showing signs of vigor.

Given that the County has a strong no-growth sentiment, perhaps other measures of economic growth are more appropriate. One measure we've suggested in the past is Real Per Capita Gross Product Growth. Real Per Capita Personal Income is another measure that's adjusted for population. These measures do not change the picture. Real Per Capita Gross Product Growth plummeted in 2007 to only 0.1 percent. Only one year in the past decade, 2003, was worse. Real Per Capita Personal Income showed virtually no increase in 2007.

It looks as if our survey respondents' despondency is justified. The next question is why is San Luis Obispo County's economy performing so weakly when the United States and California economies are strong? Part of it is surely political. A large portion of the County's population does not want to see growth, and that preference is expressed in public policy. That is not the only cause. The fact is that many of the County's jobs are in industries that are unable to grow without population growth, and this is pretty typical of a non-tradable service economy. For example, over 20 percent of San Luis Obispo County jobs are in the public sector. This is a double edged sword. It provides a bit of a buffer when the economy slows. At the same time, given the fiscal realities of California, it is not likely to contribute to energetic economic growth.

Economic growth without population growth requires tradable goods or tradable services production. Manufacturing has been declining in the County. Two tradable services industries show signs of strength, Tourism and Information. Tourism has picked up significantly by virtually all measures. The weak dollar probably ensures its continued strength. However, the problem with Tourism is that is generates very-low-wage jobs, jobs that provide the income only for substandard housing in the County. The Information sector's strong 2007 performance has brought it almost to its 2001 jobs level. It is still a very small sector, but it appears to be the sector most likely to generate quality economic growth in a low-population-growth environment."

Source: UCSB Economic Forecast Project

Cuesta College Small Business Development Center . 3211 Broad Street, Suite 109 . San Luis Obispo CA 93401
p: (805) 549-0401 . e: sccsbdc@smallbusinessinfo.org