Search Penny Hill Press

Sunday, December 12, 2010

Small Business Administration and Job Creation

Robert Jay Dilger
Senior Specialist in American National Government

The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty programs; disaster loan programs; management and technical assistance training programs; and federal contracting programs. Congressional interest in these programs has increased in recent years, primarily because they are viewed as a means to stimulate economic activity, create jobs, and assist in the national economic recovery.

This report examines the economic research on net job creation to identify the types of businesses that appear to create the most jobs. That research suggests that business startups play a very important role in job creation, but have a more limited effect on net job creation over time because fewer than half of all startups are still in business after five years. However, the influence of small business startups on net job creation varies by firm size. Startups with fewer than 20 employees tend to have a negligible effect on net job creation over time whereas startups with 20- 499 employees tend to have a positive employment effect, as do surviving younger businesses of all sizes (in operation for one year to five years).

This report then examines the possible implications this research might have for Congress and the SBA. For example, the SBA provides assistance to all qualifying businesses that meet its size standards. More than 99.7% of all business concerns currently meet the SBA’s eligibility criteria. Given congressional interest in job creation, this report examines the potential consequences of targeting small business assistance to a narrower group, small businesses that are the most likely to create and retain the most jobs.

Also, the Government Accountability Office (GAO) has recommended that the SBA use outcome-based program performance measures, such as how well the small businesses do after receiving SBA assistance, rather than focusing on output-based program performance measures, such as the number of loans approved and funded. GAO has argued that using outcome-based program performance measures would better enable the SBA to determine the impact of its programs on participating small businesses. Given congressional interest in job creation, this report examines the potential consequences of adding net job creation as an outcome-based SBA program performance measure.

This report also examines the arguments for providing federal assistance to small businesses, noting that policymakers often view job creation as a justification for such assistance whereas economists argue that over the long-term federal assistance to small businesses is likely to reallocate jobs within the economy, not increase them. Nonetheless, most economists support federal assistance to small businesses for other purposes, such as a means to correct a perceived market failure related to the disadvantages small businesses experience when attempting to access capital and credit.

Date of Report: December 9, 2010
Number of Pages: 20
Order Number: R41523
Price: $29.95

Follow us on TWITTER at or #CRSreports

Document available via e-mail as a pdf file or in paper form.
To order, e-mail
Penny Hill Press  or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.