Cantor says small businesses create 70 percent of U.S. jobs

What’s good for small business is good for the U.S.A., House Majority Leader Eric Cantor has long proclaimed.

"Small businesses are the driving force of the economy and create 70 percent of the jobs in America," Cantor, R-7th, said in a Nov. 25 news release stating his support for legislation that would make it more difficult for Washington to impose regulations on small companies.   

We wondered if small firms really create more than two-thirds of jobs in the U.S. So we asked Cantor’s office what his statement was based on.

Megan Whittemore, a spokeswoman for Cantor, directed us to a September 2010 report from the Small Business Administration’s Office of Advocacy. The study said that 60 to 80 percent of all new jobs come from small businesses.

Cantor’s estimate falls midway between that range.

What, exactly, is a small business? Federal tax law does not offer a standard definition of the term. The SBA, however, defines a small business as an enterprise with fewer than 500 employees.

Brian Headd, an economist with the SBA, said Cantor’s statement is pretty much on the mark.

"You can look at different time periods. The numbers will go up and down depending on the year," Headd said. "So it’s a reasonable general statement to make."

The SBA research shows small companies typically generate the most net new jobs -- a figure that takes into account job creation from start-ups and expansions as well as job losses from business closings and contractions.

In a March 2010 report, Headd said data from the Bureau of Labor Statistics show that from 1993 through the middle of 2009, small businesses created about 65 percent of the net new jobs in the country.

We went in search of a more recent synopsis. The SBA directed us to figures from the Bureau of Labor Statistics showing the net increase in jobs each quarter broken down by the size of a firm.

In the first quarter of 2011, the latest period for which data were available, there were 300,000 net new jobs, about 85 percent of which were created by businesses that have less than 500 employees, according to the BLS data.

In 2010, small firms accounted for about 60 percent of the nearly 1.2 million jobs created.

We should add a quick qualifier here: The SBA findings only pertain to net new jobs created in the private sector and don’t take into account jobs created by local, state and federal governments.

Still, when public officials cite the SBA’s findings on the percentage of jobs created by small businesses, they often refer to small firms creating 70 percent of "all new jobs," or 70 percent of new jobs without noting that’s the percentage for private sector jobs created by smaller firms. That’s understandable since the private sector employs the vast majority of workers in the U.S. In September 2011, the private companies provided nearly 110 million -- or about 85 percent -- of the roughly 131 million jobs in the U.S., according to the BLS.

One could reasonably expect small businesses to generate the most jobs in the private sector since, according to the SBA, small firms make up 98 percent of the businesses in the U.S. Overall, about half of the private sector jobs that exist in the U.S. are provided by small businesses, according to the SBA.

Though they provide a boost to job creation when times are good, the SBA noted in a 2010 report to President Barack Obama that the flip side is that small businesses can lead the way on job losses when the economy is sluggish.

In 2009, when the economy was limping out of a recession, small businesses accounted for about 60 percent of the roughly 5.7 million jobs lost, according to BLS figures.

Our ruling:

Eric Cantor said small business create 70 percent of the jobs in the U.S.

Data from the Small Business Administration and the Bureau of Labor Statistics show that statement is correct when talking about the new jobs created in the private sector, which provides the majority of the jobs in the U.S.

We rate the claim True.

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