1. Small Business Administration and Job Creation.
- Author
-
Dilger, Robert Jay
- Subjects
JOB creation ,ECONOMIC development ,FULL employment policies ,JOB creation laws - Abstract
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. Congress has always been interested in these programs, primarily because they are viewed as a means to stimulate economic activity and create jobs. That interest has become acute in recent months due to the adverse economic impact of the Coronavirus Disease 2019 (COVID-19) pandemic on the national economy, particularly on small businesses. For example, legislation has been enacted that has dramatically expanded the SBA's authority to provide loans to small businesses adversely affected by COVID-19. 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 indicates that small businesses tend to create more jobs than large businesses during economic expansions and lose more jobs during and immediately following recessions. The SBA has reported that preliminary economic data indicate small businesses have been disproportionally affected by the COVID-19 pandemic. Economic research also suggests that business startups play an 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 examines the possible implications this research might have for Congress and the SBA. For example, although the current focus is on job retention and assisting as many small businesses as possible to survive the current economic downturn, this report examines the potential consequences of targeting SBA non-COVID-19-related lending assistance to small businesses that are the most likely to create and retain the most jobs. In addition, 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. [ABSTRACT FROM AUTHOR]
- Published
- 2021