For years, I have heard the “fact” that small businesses are the driving force of America and a huge force in job creation. However, American Enterprise Institute (AEI) visiting scholar Veronique du Rugy has done research and comes to a different conclusion reports Business Week.
Business Week writes his 75% number is a myth — and everyone uses this number whether they’re on the left or the right, an economist, a think-tank, or a journalist. Actually, it doesn’t mean anything, and certainly not what people think it means.
What it means is that a lot of the policies and subsidies and incentives are implemented in the claim that they’re needed to help small businesses because they’re making 75% of all jobs, but in reality there’s no legitimate claim for all that government spending. The thing people fail to see is that small businesses also destroy jobs much faster because the turn over rate is high. The life span of most small businesses is less than five years.
What, in your opinion is the upshot of basing policies on this figure?
It introduces a lot of distortions that can hurt small businesses. For example, if you offer subsidies and inducements for a company that has fewer than 20 or 50 employees, there’s no incentive to grow.
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