Robert Jay Dilger Senior Specialist in American National
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
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. About 97% of all
businesses 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: January 30, 2013
Number of Pages: 21 Order Number: R41523 Price: $29.95
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