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An International Comparison of Small Business Employment

We are proud to be called the party of small business because small businesses are the origin of national prosperity. Small businesses, for instance Main Street retailers, entrepreneurs, independent contractors, and direct sellers create most of the country's new job search opportunities and are considered to be the first and most widespread ways of economic development and success by women and minorities conducting employment job search.

-2008 Republican Party Platform

We respect the entrepreneurs and owners of the small business who are the engine of our economy. Their talent, skills, knowledge and hard work are crucial to our Nation's development... Small businesses will show the way to prosperity, particularly in nowadays' challenging economic conditions and difficulties of job searching.... Success of our Nation depends on America's small businesses and entrepreneurs.

-President Barack Obama, May 15, 2009

For a long time it has been traditional in the United States to consider the small businesses to be the driving force of our Nation's prosperity. A big part of our national identity contains the idea that - due to our laws - the United States suggests the most suitable small business environment which can hardly be found in the world and is sure to guarantee success for seekers even in entry level job search.
However, international economic data show a bit different picture. Despite all the benefits available, small business is not that popular a sector to do job centre plus.

This report demonstrates the international data compared on the role the small business sector plays in the economy of 22 rich countries. And judging by the results of the review, it is unfortunately evident that the United States occupy the lowest position in the proportion of the small business.

Self-employment

The first criterion of the amount the small business takes in the share of the self-employed workforce (i.e. not including those doing job searches) of each country which. The data are provided by the Organization for Economic Cooperation and Development (OECD) for the self-employed workforce in 2007. As these data show, only Luxemburg has a lower number of self-employed people (6.1 %) than the United States (7.2 %). The rest of the countries compared have a higher share of self-employed workers. Self-employment rate is particularly high in the countries where agriculture still plays an crucial role in the national employment and job search and here belong Greece (35.9 percent), Italy (26.4), Portugal (24.2). But this factor (the agriculture sector) cannot influence the rate of self-employment in the United States.

Small Enterprises

The second criterion is the proportion of employment in small business in basic national industries. The data reflect the situation in manufacturing, computing-related services, research and development, and three lower-tech service industries.

Our second set of measures is the share of job searches and employment in small enterprises in key national industries. The data we use are the most recent published by the OECD and cover manufacturing, computing-related services, research and development, and three lower-tech service industries between 2001 and 2006 as well as information technology job search and engineering job search. We choose enterprise-size classes basing on the data available in each case. The data the OECD has published unite national sources which define the notion "enterprise" in two different ways: the first definition bases on "firms" while the second - on "establishments". The main difference lies in the fact that the first definition determines the size of the enterprise from the point of view of the number of employees employed by the entity that owns the particular workplace. The establishment-based definition concentrates only on the number of workers employed at a particular workplace, regardless of whether the workplace is owned by a larger entity.

A concrete example - a restaurant with 19 employees, say - helps to illustrate the difference between the two definitions. Under the firm-based definition, if the restaurant is owned by an individual entrepreneur, then it would count as a small business; but, if the restaurant is owned by a large corporation, then it would count as a large business. Under the establishment-based definition, however, the restaurant would be considered a small business, regardless of who owned it.

In the OECD enterprise data numbers for the United States (and Australia and Japan) refer to establishments, while the data for the rest of the countries refer to firms. The use of the establishment-based definition for the United States has the effect of overstating the share of national job searches and employment in smaller enterprises, relative to the data for countries using the firm-based definition. For example, a small fast-food restaurant in the United States would always count as a "small enterprise," even when it is owned by a large multinational corporation, while the same small fast-food restaurant in countries using a firm-based definition would only be classified as a small enterprise if it were not owned by a larger firm. In short, if the U.S. data were put on the same basis as the rest of the countries that use firm-based definitions, the share of small businesses in the United States would be even smaller than what appears in the figures below.

Conclusion

Despite our national self-image as a nation of small businesses and entrepreneurs and, consequently, successful job search in this field, the United States' small-business sector is proportionately not as large an employer as the small-business sectors in the rest of the world's rich economies. One interpretation of these data is that self-employment and small-business employment may be a less important indicator of entrepreneurship than we have long thought. Another reading of the data, however, is that the United States has something to learn from the experience of other advanced economies, which appear to have had much better luck promoting and sustaining small-business job searching and employment.

One plausible explanation for the consistently higher shares of self-employment and small-business employment in the rest of the world's rich economies is that all have some form of universal access to health care. The high cost to self-employed workers and small businesses of the private, employer-based health-care system in place in the United States may act as a significant deterrent to small start-up companies, an experience not shared by entrepreneurs in countries with universal access to health care.

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