>That means more people are deciding to work for an established company instead of starting their own.
Maybe established companies are seeing more growth. Not everyone wants to work for a new/struggling company, a lot or people want job security (if there is such a thing).
I think part of this could be the decline or brick and mortar stores.
Nowadays I probably wouldnt want to open a Hardware store vs the 70s. We have companies like Home Depot who drive the smaller guys out but they also create a lot more jobs and have better benefits than a Mom and Pop hardware store can provide.
So is it a good thing, yes and no depending on how you look at it. I really need more info on the factors that are causing the decline.
"Maybe established companies are seeing more growth."
When has that ever been the case? Small companies have always been the growth engine of the US economy, and others as well. A small company can grow 100x in a couple of years and it doesn't seem weird, whereas a large company growing even 2x would be remarkable. Even if 95% of those small companies totally fail, they're still likely to generate more growth than big companies. It's not likely to be a coincidence that declining entrepreneurship and stagnant wages (everywhere but Silicon Valley) have gone hand in hand for a while now. Yes, people seek security. That's fine, perhaps even wise, but when everyone's running for their lives there's not going to be much growth or innovation.
> Small companies have always been the growth engine of the US economy
That's not as clear as people claim.
The common definition of 'small business' when people say that 'Small business create the most jobs' is a company with fewer than 500 employees. That's over 99.5% of companies in the US, so of course they create the most jobs.
If you change the definition of a small business to fewer than 50 employees, then only 1/3 of workers are working for 'small businesses'. These companies are also the first to lay off employees and the last to hire in recessions due to their smaller balance sheets.
The whole thing is worth a read, but the gist;
It makes for a less popular stump speech, but large firms
are a vital player when it comes to job creation. Over the
past two decades, for example, small and mid-sized businesses
have held a larger share of the country’s overall employment
(29 percent and 27 percent, respectively) than they have of
total jobs added (16 percent and 19 percent). During the same
period, companies with more than 500 workers employed about
45 percent of the workforce yet contributed 65 percent of the
jobs created since 1990.
Those jobs may be more valuable, too, considering large firms
have historically paid significantly higher salaries than
their smaller counterparts. On average, small business
employees currently earn about 50 percent lower wages than
those paid to workers at large companies.
>A small company can grow 100x in a couple of years and it doesn't seem weird, whereas a large company growing even 2x would be remarkable.
You cant compare a company going through that first big growth. If you have a million dollar a year company grow by 100x to 100 million in a year or more is that really providing more growth than the company I work for which grew by ~101 million over Q1 last year. Which is helping the economy more?
What happens to the employees when the small company is bought out or fails to grow the next year. Conversely what happens next year if my company shrinks by that same 101 million in Q1 2015? We probably wouldn't start laying people off but would the small company?
It's invalid to compare large companies and small ones one to one. Compare for equal headcount (i.e. many small companies to one large one) and the small companies win by a mile.
As of December 31, 2004, our Company employed
approximately 50,000 persons, compared to
approximately 49,000 at the end of 2003
And later...
We refer to our employees as "associates."
As of December 31, 2009 and 2008, our Company
had approximately 92,800 and 92,400 associates,
In 5 years Coke almost doubled the number of employees it had. And I can't think of a "more established" company than Coke in 2004.
If you think 1000 smaller companies would hire some 40,000 people 2x over the course of 5 years, you've got to be kidding. Small companies may grow "by 10 fold", but thats because one employee becomes 10 employees rather quickly.
When you're not cherry-picking, you're distorting the numbers. For one thing, you're taking numbers starting in 2003 and ending in 2009. Is that two years? No, and 92800 is not twice 49000 either. Also, the proper comparison is not to 1000 small companies but to small companies with an aggregate head count equal to the starting 49000. If you look at the census figures[1] the biggest numbers by far are for non-employing firms (i.e. only owners) or firms with only 1-4 employees. So we're talking about more like 10000 companies at least, and yes, those are very likely to generate at least 43800 new jobs over six years even if most fail. According to the Small Business Administration[2], small businesses have accounted for 66% of net new jobs since the 1970s. Net, so that's even including those that failed. If fewer small businesses are starting, that 66% starts going down, and it doesn't take long before the net for the whole economy goes negative.
Fewer small businesses is a bad thing, to such an obviously huge degree that I'm amazed I even have to explain it - especially here. Really, all you "skeptics" need to do is educate yourselves.
Case in point: the "self-employeed company". I'm sure you're all familiar with some company out there that uses "Independent Contractors" (various insurance companies... most door-to-door jobs, a lot of sales representatives...)
Do note, independent contractors are considered 1-man companies. Surely, these are NOT "small businesses", but simply employees whose employer is too lazy to get them federal benefits.
Again, large companies who are taking advantage of the tax code... which pads the small business numbers. (In this case, they take advantage of the fact that they don't have to pay payroll taxes on Independent Contractors).
Hedge Fund managers also come in from this side. They can be independent contractors that are responsible for millions of dollars. IIRC, there were some regulations here that benefit the creation of "new independent companies"... usually employing only one person.
In order for the first set of "1-man companies" to pass IRS muster, as a rule they've got to have a set of characteristics like a degree of autonomy. The ones you listed sound like they could pass muster; compare to "typical" computer programmers like many on this site who work at one location, doing tasks directed by a manager, etc., and who don't (as of 1986-7).
If the company doesn't want to make them regular employees, they have to go through a body shop. else the IRS may realize the game, and require the company to pay back W2 type taxes, interest and penalties, never-mind that the individuals have been playing their FICA taxes (both "shares") etc.
I'm not sure this is a big problem. I'm particularly unsure what the problem would be with "hedge fund managers" (aside from our required Two Minute Hate). What major expenses do they have that can make a noticeable dent in their outsized incomes? Surely they're sufficiently big fish they don't get away with cheating on the FICA taxes? Etc.
(I say this as the son of a serial small businessman, who's watched him thread the needle of the IRS's requirements for much of his life.)
The door-to-door sales jobs I've seen are right on the edge. They may expect you to come in at certain times for "unpaied team meetings", there is an expectation to arrive at "nonmandatory training", etc. etc. Words that are used to prove to the IRS that they are running "independent contractors" while barely skidding the line.
Anyway, the important bit is that "small businesses" are poorly classified in the USA. A lot of one-man shops are basically poorly-treated employees, skirting the law so that they can ignore certain taxes.
Yes, there has been growth in "small businesses", but unless we get more data, there is no way to tell if small businesses are actually growing, or if companies are simply shedding employees for independent contractors to avoid payroll taxes.
Interesting, lets go back to the original subject of the article.
Do you think these small companies the article said are failing are actually "companies" in the traditional sense or one man operations combined with "tax saving" contractors?
It seems we may need more data to draw conclusions.
What I'm worried about, is that "Small Business Growth" has been the switch over into independent contractors.
IE: A company fires 10,000 employees ("losing" large business employees), and then "hires" 10,000 independent contractors. Given how the statistics work... this counts as "+10,000 small business jobs".
As long as the tax code benefits "small businesses", we can expect a degree of corruption and fraud.
I think we all can agree that "true small businesses" are a good thing. What I'm worried about are all of the "fake small businesses" who are taking advantage of tax benefits.
The current methodologies for determining "small businesses" are inadequate. The truth of the matter is, large companies (like Coke) are increasingly owning subsidiary companies which technically count as a Small Business.
Do you really want to know why "small businesses" are making jobs? Because large companies are reorganizing themselves as a bunch of small companies to take advantage of tax benefits.
I'm talking about Green Mountain Coffee, Honest Tea, and other subsidiaries of Coca-Cola which count as small businesses, despite being fully owned by larger businesses.
Consider "Honest Tea", which was 40% owned by Coke since its inception. With its paltry 112 employees, it is considered a small business by the American Tax Code.
But lets be frank here. Now that "Honest Tea" is 100% owned by Coca-cola, it is nowhere near a small business.
When a large company reorganizes itself so that 1 million of its jobs are moved into subsidiary companies... that isn't "Small Businesses making jobs", that's "Large Businesses taking advantage of dumb tax code".
And as long as the "Small Business Myth" remains, you can expect "large business" to reorganize themselves to take advantage of tax benefits.
Maybe established companies are seeing more growth. Not everyone wants to work for a new/struggling company, a lot or people want job security (if there is such a thing).
I think part of this could be the decline or brick and mortar stores.
Nowadays I probably wouldnt want to open a Hardware store vs the 70s. We have companies like Home Depot who drive the smaller guys out but they also create a lot more jobs and have better benefits than a Mom and Pop hardware store can provide.
So is it a good thing, yes and no depending on how you look at it. I really need more info on the factors that are causing the decline.