America and Small Business

WASHINGTON – August 3 – Contrary to popular perceptions, the United States has a much smaller small-business sector (as a share of total employment) than other countries at a comparable level of economic development, according to a new report from the Center for Economic and Policy Research (CEPR) . The CEPR researchers observe that the undersized U.S. small business sector is consistent with the view that high health care costs discourage small business formation, since start-ups in other countries can tap into government-funded health care systems.

“We think of ourselves as offering the most business-friendly environment in the world, but almost every other rich country in the world does a much better job creating and sustaining small businesses,” said John Schmitt, a senior economist at CEPR and an author of the report.

The study, “An International Comparison of Small Business Employment,” reviews the most recently available, internationally comparable data from the Organization for Economic Cooperation and Development (OECD) to measure the share of small businesses in 22 rich democracies. The report finds:

The United States has the second lowest share of self-employed workers (7.2 percent).

The United States has among the lowest shares of employment in small businesses in manufacturing – only 11.1 percent of the U.S. manufacturing workforce is in enterprises with fewer than 20 employees. Eighteen other rich countries have a higher share of manufacturing employment in small enterprises, including Germany (13.0 percent), Sweden (14.4 percent), and France (18.0 percent).

U.S. small businesses are particularly weak in high-tech. The United States, for example, has the second lowest share of computer-related service employment in firms with fewer than 100 employees and the third lowest share of research and development related employment in firms with fewer than 100 employees.

“In the rest of the world, entrepreneurs who want to start a new business don’t have to think twice about where they and their employees will get health insurance,” said Schmitt. “In the United States, talented people thinking about starting a new business often have to choose between following their dream or going without health insurance.”