Small Businesses are Critical to the Economy

In May, Janet Yellen, the new Chair of the Federal Reserve, spoke at the SBA’s National Small Business Week conference. Why would the new chair, who just started her job in February, make time to speak to small businesses when she has such an important policy role in the entire US economy? The explanation is that small businesses are critical to the economy and can not be ignored.

How do small businesses consistently make important contributions to economy? Small businesses are very customer oriented and adapt quickly to changing economics. They tend to attract people with a talent for inventing new products and coming up with innovative solutions for problems.

Small business offer an environment that attracts and retains talent through fast decision making and research that is focused on the needs of customers. They are not hindered by layers of bureaucracy and management.

Let’s take a look at the numbers that consistently back up these assertions.

In the U.S. , small businesses generated 64% of new jobs over the last 15 years and paid 44% of private payroll taxes. They generated an even higher percentage, 81%, of new jobs during the 2005 to 2008 time period.

Year in and year out, small businesses employ just over 50% of private non-farm workers. The twenty-eight million small businesses in the U.S. generate about 50% of the gross domestic product. And they are important exporters too. 97% of exporter companies are small businesses and they ship 26% of the value of all exports.

A U.S. Small Business Technology Council survey found that small businesses employ 32% of scientists and engineers while larger firms employ somewhat less at 27%. However, patent productivity is lopsided. An SBA study in 2011 found small businesses generated 26 patents per employee compared to only 1.7 patents per employee at large firms.

Larger companies depend on the ability of small businesses to deliver value and as result small firms play a key role in the ecosystem of larger companies. U.S. auto makers have more than 1,700 suppliers, hundreds of whom are small businesses. Even more small businesses are suppliers to retailers, grocers, pharmacies, distribution, and high-tech companies. High-tech Apple has about 12,000 employees in California, but there are an additional 60,000 jobs in state that are related to Apple in some way.

Small businesses are important to economies all over the world. For example, in Canada small businesses accounted for 37% of new private sector jobs between 2006 and 2007 and employed 48% of private sector workers. They generate about 30% of the Canadian Gross Domestic every year.

Entrepreneurs and their co-workers are the backbone of creativity and production all over the world. CovalentWorks is proud to assist thousands of small businesses with cloud EDI solutions built to serve their unique needs. Contact us anytime to find out more.

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