Tuesday, October 06, 2009

Small Business and Employment

by Calculated Risk on 10/06/2009 07:00:00 PM

Atlanta Fed research economist Melinda Pitts writes at Macroblog: Prospects for a small business-fueled employment recovery

In a speech yesterday, William Dudley, the president of the Federal Reserve Bank of New York, identified financial constraints for small businesses as a restraint on the pace of economic recovery.
Dr. Pitts excerpt from William Dudley's speech, and then notes:
President Dudley's comments are even more relevant in the current recession if one considers the disproportionate effect the recession has had on very small businesses.
Net Employment by Business Size Click on graph for larger image in new window.

Graph Credit: Melinda Pitts, Atlanta Fed research economist and associate policy adviser

This graph breaks down net job gains and losses by firm size since 1992. During the current employment recession, small firms have accounted for about 45% of the job losses - much higher than during the 2001 recession.

Dr. Pitts cautions:
Looking ahead, it's not clear whether small businesses will continue to play their traditional role in hiring staff and helping to fuel an employment recovery. However, if the above-mentioned financial constraints are a major contributor to the disproportionately large employment contractions for very small firms, then the post-recession employment boost these firms typically provide may be less robust than in previous recoveries.