Weakness in the small business sector and implications for economic recovery in the US

Given the fact that small businesses employ about 50% of all US workers, the health of the small business sector is crucial to the sustainability of economic recovery in the US. Consider, for example, an index like small business average change in employment per firm. This index has dipped discernably about three or four times since the onset of the Great Recession. Further, it has been negative for most of the time since the beginning of the Great Recession.

Small businesses rely to a great extent on domestic spending. Whether that makes it more vulnerable than big businesses to housing sector collapses and financial sector collapses is an interesting question. This article is not intended to discuss the effect of sectoral collapses on the demand levels of firms. One probable reason for the persistent weakness in the small business sector is the difficulty of restarting closed small businesses ( considered in the aggregate ) or starting new kinds of small businesses in a high risk economic climate and in a situation of weakness in the demand side of the economy.

by C. Jayant Praharaj ( send comments to cjpraharaj.web@gmail.com )