As National Small Business Week began winding down on Thursday evening, Federal Reserve Chair Janet Yellen pointed to the significant role small companies have played in the economic recovery since 2010.
“The Federal Reserve tries to promote the conditions to foster job creation, but, overwhelmingly, it is businesses that create the jobs,” Yellen told attendees of a banquet at the United States Chamber of Commerce in Washington, D.C., adding: “America has come a long way since the dark days of the financial crisis, and small businesses deserve a considerable share of the credit for the investment and hiring that have brought that progress.”
Yellen pointed to Labor Department data showing that businesses with fewer than 250 employees created more than half of the new jobs created since 2010 and most of those new jobs came from firms with fewer than 50 employees. She spoke little about the Fed’s monetary policy in her short remarks, instead focusing on small businesses as contributors to the economic recovery.
While Yellen’s claim that small companies fuel job creation is certainly motivational, it runs contrary to some other recent government data. A recent analysis by Bloomberg Businessweek, for example, shows that large companies have added more jobs than small companies in recent years. It found that 50.8 percent of U.S. workers were employed by businesses with 250 or fewer employees in 1993, falling to 46.7 percent by 2013. Companies less than a year old were responsible for creating about 30 percent of all new jobs in 1993, compared to 23 percent by 2013.
Jason Faberman, senior economist in the Economic Research Department of the Federal Reserve Bank of Chicago, told The Wall Street Journal in 2012 that it’s a myth that small businesses fuel U.S. job growth:
Many small businesses are small because they choose to be small and remain that way…While small businesses may create many jobs, they also destroy many jobs. According to data from the Labor Department, firms with less than 10 workers create jobs at a pace equal to at least 10 percent of their employment in any given quarter. They lose jobs at roughly the same rate, though, so that the net job creation from small firms is negligible.
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