This is the annual Small Business Week in the USA, with the intent of commemorating a core economic engine of our economy as well as a foundation of American entrepreneurialism. A huge share (well over 90%) of all business establishments in our country are considered “small businesses.” There are many good primers available on what small businesses mean to our economy, and here are a select three:
- JP Morgan Chase overview
- A summary from the Small Business Administration
- A profile from the Small Business and Entrepreneurs Council
Be aware that there are many definitions out there for what’s meant by “small business,” as you’ll see in some of the reports we link to above. Sometimes it’s all businesses under 500 employees (which are close to 50% of the jobs in our economy); sometimes as a smaller segment of businesses providing under 20 jobs. Using the latter definition, we took a look at businesses with 20 or fewer employees and compared small business indicators across our Atlanta MSA, the State of Georgia and the nation.
As you’ll see above, businesses with 20 employees or fewer consistently represent 15-20% of all firms across the whole economy, and that’s true for the MSA, the state and the country. The share, though, has either stayed the same or ticked lower in the 2002 to 2017 period, depending on which area you look at. The small business shares in our Atlanta MSA are slightly lower than those found in Georgia and the US, and those shares have been static over time.
The chart above illustrates that employment growth rates for small businesses have generally been higher than growth rates seen across all firms for the MSA, the state and the country in the 2002 to 2017 period. Small business job growth in the Atlanta MSA was higher than all regional businesses from 2002-2007, declined during the recessionary period of 2007-2012 (but less than did the economy as a whole), then grew again at a faster rate than the baseline in the recovery period of 2012-2017.
Wages in small businesses have historically been lower than wages paid in larger companies, and the data we pulled and charted above showed this to be true — in all periods and for all areas compared. And of concern are the declining ratios of small business wages to overall wages across the time periods, again for all areas. In 2002, the average wage in small businesses in the Atlanta MSA was 77% that of the economy as a whole, but by 2017, this ratio had dropped to 63%.
The news on wage growth in small businesses is perhaps even more convicting, especially locally. There has been some wage growth in all types of businesses across all the periods, though in the recessionary period of 2007-2012, for small businesses at least, those increases were below inflation. Wage growth rates, for each of the periods, were lower for small businesses than in all businesses. The relative challenge for Atlanta is that the gaps in wage growth have widened over time (a larger percentage point difference in 2012-2017 than in 2002-2007 and 2007-2012), while in the state and the nation, the gaps have narrowed over time.
Small businesses will continue to be a very large share of firms in our economy, especially with the explosion of the gig economy that we’ve seen lately. But there is consolidation going on in most industries in recent years, and the Wall Street Journal recently noted that in a survey of 765 small firms, 66% said they expected their revenues to grow this year, down from 83% a year ago. Just 14% of those surveyed expect the economy to improve this year.