Who Creates New Jobs?

Question: Which entity below creates new jobs?

A. Government
B. Large corporations
C. Small businesses

The answer is--they all create new jobs. But, small businesses do it best.

In fact, small businesses created some 60-80% of net new jobs during the past decade. Companies with 500 or fewer people employ over half the country's private sector employees.

Small businesses create more new jobs faster and more effectively. As we look for ways to improve the economy, we overlook the importance of small businesses at our peril.

Quick Vue: Note what highly successful entrepreneur Richard Branson has to say in this very brief video.



To be sure, governments create new jobs too. But is that what we want to emphasize? New Jersey, for example, added some 58,000 employees to its payroll since 2001. The U.S. Department of Labor says that the state added about 15 new jobs for every new private sector job. Imagine if the ratio were just one new state job for every 15 new private sector jobs.

When a small business, or any business, adds a job, it is because there is an expected return on investment. In other words, the job will help the business grow and create wealth. That's not necessarily the case when governments create new jobs.

What does it cost to create a new job? Critics of the Obama administration's stimulus plan say that the federal government will spend $275,000 to create each new job. Nobel prize winning economist Paul Krugman disputes that number, saying that the cost will more likely be closer to $100,000. Even if he's right, how cost-effective is that?

Perhaps we should all be asking: How can we make it possible for small businesses to create more new jobs than ever before?

Sources for this post include The Wall Street Journal (including article by Timothy Aeppel), The New York Times (article by Paul Krugman) and The Plain Dealer .