The Washington Post had a front page article pushing some vague and unspecified plan by the Obama administration to aid small businesses by using TARP money to guarantee loans. The article implies that economists debate the amount of employment by small businesses: "Some economists estimate that small businesses, defined as firms with fewer than 500 workers, employ most of the country's workforce." Actually, economists don't speculate much on this topic, since there is very good data on employment by firm size available from the Bureau of Labor Statistics. There had been some debate in the 90s about whether small businesses were responsible for a disproportionate share of job creation. While this is true, small businesses are also responsible for a disproportionate share of job loss. Most small businesses only survive a few years. As a result, small businesses on net, create new jobs at roughly the same rate as larger businesses. It is worth noting that there are already many substantial subsidies available to small businesses. For example, the Small Business Administration has a variety of programs that allow small businesses to get loans at below market rates. These subsidies can be very large relative to other government benefits. For example, if a small business owner gets a $500,000 loan at an interest rate that is 2 percentage points below the market rate, this is an effective subsidy of $10,000 a year. That is close to twice the average TANF grant that a mother with two children would receive.
--Dean Baker
