Do Small Businesses Actually Create Many New Jobs? – Tamara Keith of NPR Helps us Think About This

The thing restaurants are best at is going out of business.

Jonah Berger, Contagious:  Why Things Catch On

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I have written many times on this blog about “where will the jobs come be?”  Here’s more to think about.

Do small businesses create jobs?  That is the question asked by Tamara Keith, one of my favorite NPR reporters, in her segment When It Comes To Jobs, Not All Small Businesses Make It Big.

(In a 25 second piece, her portion of “This is NPR,” Tamara Keith says:  “Good storytelling and strong reporting can take you places.”  I  agree!)

In her segment, she quotes John Haltiwanger, a professor of Economics at the University of Maryland who studies job creation.  He says:

It’s not really accurate to say that small businesses produce most of the nation’s new jobs.
He points to his neighborhood coffee shop.
The coffee shop has had, like, probably six, seven employees the whole time it’s been there. It’s a great coffee (shop), provides a service. When you ask them what they want to do, they say they want to be a coffee shop. When you say do you want to grow big, they say no. Do you want to innovate? They say no, I want to serve coffee.

And she continued:

Economists say it’s all about new firms, startups. Not all of them, though. Most startups will actually fail. The second most likely outcome is that they’ll start small and stay small. Just a tiny fraction start small and then grow fast, creating an outsized share of new jobs. One such company is Sweetgreen, which dishes out fast, fresh organic salads in compostable bowls at 20 locations on the East Coast.

So, to summarize, here are the three likely outcomes of a new small business:

#1 – it will fail.

#2 – it will succeed.  But, as a small business – with just a handful of employees.  We need these, but they are not significant job creators.

#3 – It will be the beginning for a larger enterprise.  It will be a start-up, rather than a small business intending-to-stay-small enterprise. A start-up intends to innovate, and grow and expand, and become much, much bigger.  These will possibly provide enough jobs to make a difference.  (By the way, some of these fail also – or, intend to get big, but stay small, and fledgling).

But…  an observation.  Yes, such companies can create jobs.  But, do they add to the overall number of jobs?  Maybe not always.

In her segment, Ms. Keith mentions Sweetgreen:

One such company is Sweetgreen, which dishes out fast, fresh organic salads in compostable bowls at 20 locations on the East Coast.

I bet, as Sweetgreen grows – as they create and provide jobs — their customers will, for the most part, come from other restaurants.  It may not result in much of an overall increase of people eating out.  It may simply be a shift of where people eat — ultimately causing a shift for where people work.

In other words, when a new restaurant opens, there may be another restaurant that has to close.  So, is this genuine new job creation?

(I still miss Steak and Ale.  And it’s been closed for years!)

But, I think this is an important discussion.  I think jobs may be the greater challenge (the greatest challenge) or our era – even greater than education.