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THE ISLANDER, JULY 6, 2009, PAGE 15 Small Businesses Most Likely to Lead Economic Recovery By Brian Headd, Economist, The Small Business Advocate During the last year the media has begun to pay close attention to the role small busi ness plays in job generation. That is because amid the moun tain of previously disap-pointing economic statistics, small busi nesses provide some interesting- contrasts. While recent job loss es are widespread, small busi nesses’ historical overall rate of net job creation makes them a key player in solving our labor market woes. And the number of newly self-em-ployed, whether by choice or not, still offer glim mers of hope.Unless your age is measured in single digits, you probably have direct knowledge that the labor market has had its ups and downs. The U.S. Bureau of Labor Statis-tics (BLS) reports that nonfarm, private sector employ ment peaked in December 2007 at 115.8 million then fell to 109.5 million by May 2009. During this period, job losses from mass layoffs (more than 50 layoffs from one location) num-bered 3.6 million, up 66 percent over the preceding 18 months. The loss of over 6 million net jobs is a problem that needs a solution. Where will the new jobs come from? There may be clues in the recoveries from the two most recent economic downturns, in 1991 and 2001. When considering small business employment, remem ber that there are two kinds of small businesses: those with out employees (or non-employer businesses), and those with paid employees (or employer busi nesses). The Office of Advoca-cy estimates that in 2008 there were 23.1 million nonemployer and 6.1 million employer businesses. When the economy struggles, A “Timely Care for the Life of Your Pet” Jan G. Rossiter, DVM ISLAND ANIMAL HOSPITAL •Bathing • Dipping •Medicated Baths for Therapeutic Skin Care 2603 Demere Road St. Simons Island 638-2583 the number of nonemployers tends to increase at higher rates, while the number of employer businesses stagnates or declines. For example, when the economy was humming along during the late 1990s, non-employers had annual increases in the 2 to 3 percent range; as the econo my limped along from 2007 to 2008, they increased an esti mated 8.1 percent or 1.7 mil lion. The change in the number of employers is not nearly as sharp. Employers have tended to have annual increases of 0.75 percent to 1.5 percent when the economy has done well and neg ative to flat when the economy struggles. Employer firms con tracted by -0.5 percent during the 1991 downturn and grew 0.1 percent in the 2001 peri- od.Nonemployer growth is not sim-ply a response to economic factors; many personal factors cause people to go into business for themselves too. For instance, self-employment rates increase with age, income, and gener ally with education. The number of employer business start-ups is affected by the economy, but again, probably less so than one might guess. BLS’s Business Employment Dynamics data show that the business startup rate (per-cent of businesses that quar- three 20 15 10 o cr Job Share: Net Job Creation/Destruction 1-19 Employees 20-499 Employees 500+ Employees Mid 1992-1993 were new in the ter) for the first quar-ters of 2008 aver aged 2.8 percent, versus 3.0 percent in 2007 and 3.2 percent in 2006. But new business-es are only part of the job creation story. Employment cre ated by start-ups (minus the job losses from firm exits) accounted for 30 percent ofthe pri vate-sector net employ- mentincrease from 1993 to 2007, whilecontinu- ing businesses provided thremaining 70 percent. The 1.7 million increase in nonemployers is a lifesaver for many indi viduals and families. But sincea large portion of nonemployers work less than full-time, when we talk about expand ing the job market, we are most interested in with 20-499 employees. The through 2002 they accounted for employer firms. In the after- smallest firms, with fewer than less than one percent of the net math of the 1991 downturn, 20 employees, weathered that loss. So a labor solution is more firms with 20-499 employees storm. The current downturn is likely to be found by studying 2008* 2003-2007 -5 *Through the third quarter. Source: U.S. Small Business Administration, Office of Advocacy, from data provided by the U.S. Bureau of Labor Statistics, Business Employment Dynamics. led the employ-ment expansion, while the smaller and larger size classes struggled. During the 2001 downturn, larger firms (500 or more employees) experi enced the greatest net employ ment losses, followed by firms Bruce Kennedy Tire Company Honest, friendly service from a name you can trust! Oil Changes Brakes • Tires A.C. • Alignment 2928 Norwich Street Brunswick, GA 264-6578 phone 264-6580 fax Hours: Mon.-Fri. 8 a.m. - 5 p.m. shaping up more like 1991 than the 1991 downturn rather than 2001. Data from the Bureau of the 2001 dip. Our best hope for Labor Statistics attributed 35 job creation may shape up to be percent of the net job loss dur- expansion of exist-ing firms with ing the first three quarters of 20-499 employees. 2008 to firms with fewer than For more information, visit 20 employees, whereas in 2001 www.irs.gov. □ Save up to 56% on your cooling costs white also saving some other valuable resources Capture the Memory of a Lifetime. 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