Small Businesses Are Withering Away

Jan 15, 2013

Small businesses are feeling a cold chill coming from the nation's capital, with 70% saying that Washington has become more hostile toward free enterprise in recent years, according to a survey by Job Creators Alliance. Only 19% believe Washington’s policies have become less hostile.

By a margin of 2 to 1, respondents to an open-ended question volunteered taxes as the single most important issue facing small businesses, followed by health care. Sixty percent of respondents say that Obamacare will negatively impact their business in 2013.

The U.S. Chamber's most recent quarterly Small Business Survey found that more than half (53%) of all small businesses did not hire in the past year and that 64% plan to keep the same number of employees in 2013. Economic data supports these survey findings. Bloomberg, citing a Citigroup analysis of Census Bureau data, reports:

Payrolls at firms with fewer than 500 employees accounted for less than 50 percent of the total workforce for the first time in 2008 during the recession and have barely recovered, according to their research. After hovering close to 50 percent, small businesses’ share of gross domestic product began dropping in 2001 to reach about 45 percent in the latest available data.

The data also show that "the total number of small businesses is also falling, decreasing to 4.9 million in 2010 from a peak of 5.3 million three years earlier."

The environment for startups appears no better than that of established small businesses. More from Bloomberg:

The number of establishments less than 1 year old has declined each year to about 505,000 in 2010 from a peak near 665,000 in 2006, according to the most current data available from the Labor Department. Citigroup found that the birth rate, or number of new small firms created in a given year relative to the total number of such firms, has dropped from 12 percent in the mid-1980s to around 8 percent.

Citigroup’s Sheets says that’s where policy makers should focus their efforts to boost the economy. Research by economists Teresa Fort, John Haltiwanger, Ron Jarmin and Javier Miranda found that while employment at startups accounts for 3 percent of the workforce, hiring by these firms represents 20 percent of total job creation, according to a November paper.

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