Small business makes biggest impact on jobs

Who's creating jobs? How many, what kinds and where? MIT's David Birch, a physicist turned micro economist and the established guru of job creation in America, tells us in a new study that provides fresh insights to findings already established.

• Size. Birch and others have shown that small businesses -- enterprises under 100 employees -- account for 70% to 100% of new job growth. How much depends on the business cycle. Birch's new study shows that larger firms do better in good times, but most jobs always come from small business. According to Birch, "Small firms are fairly steady job creators and large firms are erratic."

Birch's new data for the period 1987-92, show that firms under 19 employees account for 78% of all jobs created, and those under 100 account for virtually all new jobs. Reason: Job gains by some large businesses (e.g., Microsoft, Pace, TCI) are more than offset by large business job losses (GM, IBM, aerospace).

Reason #1: Jobs created up and down Main Street and in Edge City industrial parks by a process of "bunts and singles" -- with a few doubles and triples sprinkled in -- far exceed the jobs produced by the "home run" of landing the big outside company looking for greener pastures.

Reason #2: Downsizing firms tend to close (or shrink) branches first. Example: When the oil business went south in the 1980s, law, accounting and other business and professional firms in Denver, Dallas and Houston were the first to reduce their presence or pull up stakes completely.

The findings are dramatic: Gazelles (97% are small) account for most of the job growth. In fact, the top 4% of Gazelles account for 70% of all new jobs created. Conclusion: If you want to create jobs, figure out how to nurture the rapidly growing small enterprises, a policy pioneered by Littleton, Colorado.

Punchline: Job growth happens when leaders create a good business climate for homegrown, locally owned enterprises.