Cue the world’s smallest violin (again, I guess) for the country’s “job creators.”

So BR emails me the other day that links here with the message “Have a field day with this crap” (not unlike many emails I get). So, off to the link I go to read the story. What I assume incensed the sender is essentially the same thing that has really been incensing me for the past several years: that we apparently now live in a relatively fact-free environment where folks are comfortable spinning whatever tales fit their agenda, reality be damned. This seems to be especially true when it comes to genuflecting before our deified “job creators.”

Let’s look at the crux of the author’s piece (emphasis mine):

However hostile Democrats like me may be to the excesses of Wall Street, and however much everybody admires the small, independent businesses in our neighborhoods and communities, big business remains the primary driver of economic growth and job creation.


What does ADP data tell us about that going back to the end of the recession?

(Source: FRED Series NPPTS, NPPTM, NPPTL, author calculations)

What does the SBA tell us (PDF) about small business (emphasis mine)?

Small firms (defined as those with fewer than 500 employees):
• Represent 99.7 percent of all employer firms.
• Employ about half of all private sector employees.
• Pay 43 percent of total U.S. private payroll.
Have generated 65 percent of net new jobs over the past 17 years.
Create more than half of the nonfarm private GDP.

All that said, is it really appropriate to write that “big business remains the primary driver of economic growth and job creation” when the facts (remember them?) tell us otherwise?

This whole “leave the billionaire job creators alone or they won’t hire anyone” meme has gotten very old, very fast. I guess in large part because it’s untrue. And also because they’ve been left alone and they’re still laying people off. Comments like those seen here, here and here are laughable. Sad, but laughable.

As I’ve shown repeatedly via NFIB data, how sales are faring at small business has an incredible correlation to the unemployment rate.

Anyway, it’s a sad state of affairs when virtually every piece of information put out for public consumption needs to be fact-checked. I don’t know when, exactly, this trend started, but I sure hope it gets reversed soon.

Oh, and lest anyone accuse me of getting political, note first that the author is a Democrat.

Adding this Reagan quote from April 1981: “Let us not overlook the fact that the small, independent business man or woman creates more than 80 percent of all the new jobs and employs more than half of our total work force.”


Category: Employment, Financial Press

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

39 Responses to “Picking On the Job Creators”

  1. machinehead says:

    Corporations and institutions have life cycles, just as mortal entities do — birth, growth, maturity, senescence, death.

    Obviously, to keep this macro cycle going, growth at the small-cap end of the spectrum MUST exceed large-cap growth. This is the reason behind the small-cap stock outperformance phenomenon which has fascinated finance academics for a generation.

    The linked article is a fine example of our braindead Lamestream Media, mindlessly disseminating disinfo from braindead Academia — two uncompetitive, past-their-prime dinosaurs that are about to get severely pruned.

    Southern Californians are panicking, wondering how they will line their bird cages when the L.A. Times bites the dust. There should be plenty of blank college admissions forms to take up the slack!

  2. BennyProfane says:

    I’ve been using Greece as an example lately. Since nobody of any means pays taxes there, then why is the place such a mess? You would think that they would be importing immigrants to fill all the new jobs, right?

  3. [...] Large companies have sat out the hiring recovery.  (Invictus) [...]

  4. ashpelham2 says:

    Life cycle of business and country seems to be a really clear place to lay blame. We are grappling with the fact that we are maturing as a nation and the businesses that go with that are too. We don’t need 1000 auto manufacturing plants. We don’t need printed newspapers. We DO need brains to solve problems, not to build houses. We are out of touch with what is naturally happening, and need to awaken to it.

  5. Lariat1 says:

    Thank you. We are a very small business for the past 30 years. We have added three new employees this second quarter and they have benefits such as the option for health insurance. Although where that ends up at is going to be interesting. Most in our field are slow so we are grateful to be adding employees. Long term? Who knows and I can’t look ahead and try to figure that out because truthfully during our Recession 2009, someone here told me to draw a line in the sand concerning how far to go to try to save a business and stick to it. We didn’t hit that line but it was the best advice I was given in a long time. It took that unknown fear of bankruptcy and put it in its place. So I plan one quarter ahead at a time. It seems to be working for now. Subject to change!!!

  6. chris says:

    While you’re right that the “leave the billionarie job creators alone” argument doesn’t hold up, there’s evidence that SMALL is not the defining characteristic of job creating firms–it’s AGE. Check out this if you can get behind their paywall:

    or here is one summary of the work:

  7. VennData says:

    You say, “Oh, and lest anyone accuse me of getting political, note first that the author is a Democrat…” Invictus. Well let ME say “I’m a Returner: Romney, Release your returns!”

    25% of Romney bundlers hail from finance sector

    So follow the bankers you love, the financiers with their carried interest tax break, the people who paid themselves big after you bailed them out… follow them and support Romney.

  8. bobnoxy says:

    This one’s easy. The very rich see the budget holes and don’t want to pay any more in taxes. So to get us to go along with their Bush tax cuts and focus on spending, they threaten us with our jobs, like Hank Paulson did when blackmailing Congress for that initial $800 billion bailout.

    You don’t want to see the banks fail. Your employer won’t be able to borrow to meet payroll and you’ll get canned. And the ATM’s won’t work so you’ll be starved for cash and won’t be able to feed your kids.

    Of course, it helps that they can hire the best P.R. firms and think tanks to craft and sell the message. Play up the emotional aspects and we’ll meekly follow along. We always do.

    Gee, you don’t want to lose your job now, do you? Of course not. Just sign here.

  9. willid3 says:

    was thinking our rich were actually from Greece.
    and every time i hear we just have to help the ‘job creators’ or that they are sniffled by ‘uncertainty’.

    i wonder

    if they really are the job creators? since they can’t seem to do their part. we give them big tax breaks. they do nothing. then i figure it out. we just gave them a big pay raise for doing nothing more. so little wonder they dont do more. of course that all depends on them actually being job creators. me i think is the buyers of any thing. because without them there would be no jobs at any of the ‘businesses’.

    then theres that ‘uncertainty’ theme song. which as BR pointed out is nonsense because uncertainty is the norm. and i doubt they can predict if they can make another sale, but it doesnt seem to affect that much.
    and not making another sale will put them out of business.

  10. Orange14 says:

    LOL! I retired from my old job in June of 2010 and a week later drove up to Baltimore to file my incorporation papers as an LLC, aka ‘small business.’ I guess I must be part of some statistical database of job creators (as are a lot of my friends who either took early retirement or were laid off from the pharmaceutical industry). Thus, we see lots of new jobs related to small businesses but nothing that I know of that breaks things out as sole-proprietorship (aka ME). Also, I’m not terribly profitable and went the LLC route for legal and accounting reasons. As a result I’m one of the blips in the first big bar on the chart that you show.

    I’m also NOT a member of NFIB or any other like-minded association and I release my tax forms yearly (to the IRS of course)!

  11. Joe Friday says:

    Actually, with more than 72% of the national economy comprised of Consumer Spending, it’s the Middle-class and Working Poor that are the “job creators”.

    We are a demand economy.

  12. GeorgeBurnsWasRight says:

    I think there’s another factor. Odds that the CEO of a company with less than 50 employees personally knows the worker he/she is laying off are much higher than for the CEO of a large corporation. It’s a lot easier to lay off numbers on a sheet of paper than human beings.

    As phony as I think many of the scenes on those “Undercover Boss” shows are, I do think there’s some real moments when those CEOs get to know some of their front line workers.

  13. Jojo says:

    Businessweek published a similar article last year by a Charles Kenny of “The Center for Global Development and the New America Foundation” (whatever that may be).

    It appeared to me to make a persuasive case that yes, big companies ARE the real job creators. Specifically:
    Opening Remarks
    Charles Kenny
    September 28, 2011

    Rethinking the Boosterism About Small Business
    Politicians may love to extol the virtues of small business, but big companies are still the key to growth

    In the U.S. in 2007 there were around 6 million companies with workers on the payroll. Ninety percent of those businesses employed fewer than 20 people, according to analysis of the latest census data by Erik Hurst and Ben Pugsley of the University of Chicago. Collectively, those companies accounted for 20 percent of all jobs. Most small employers are restaurateurs, skilled professionals or craftsmen (doctors, plumbers), professional and general service providers (clergy, travel agents, beauticians), and independent retailers. These aren’t sectors of the economy where product costs drop a lot as the firm grows, so most of these companies are going to remain small. And according to Hurst and Pugsley’s survey evidence, the majority of small business owners say that’s precisely their intent–they didn’t start a business for the money but for the flexibility and freedom. Most have no plans to grow.

    Some small companies do grow, of course. Think Apple (AAPL) or Hewlett-Packard (HPQ), which were initially run out of garages, or Google (GOOG), created by two guys in a dorm room. But the vast majority of small enterprises stay small. Eighty percent of U.S. small companies that remained in business from 2000 to 2003–the most recent period for which Hurst and Pugsley compiled data–didn’t add a single employee.

    Looking at a sample of companies created from 2004 to 2008, Hurst and Pugsley found that only 3 percent added more than 10 employees during that time. An even smaller proportion had applied or were in the process of applying for patents. (So much for being seedbeds of innovation.) Many small businesses simply go bust after a few years. In 2009 economist Scott Shane at Case Western Reserve University surveyed the evidence on net job creation by each year’s cohort of new companies. He found that among small companies in their second year of business, more jobs were lost to bankruptcy than were added by those still operating. The same was true in years three, four, and five.

    See the full article here:

  14. wally says:

    Somebody who is sitting on a billion dollars is, by definition, not a job creator. You only create jobs by getting your money – and far more likely, your credit – working for you.
    What makes an economy work is not money, it is money moving, working, spinning around and around. It is the velocity, not the quantity, that matters.

  15. DSS10 says:

    This was a topic of discussion a couple of weeks ago with my PhD Econ friends. The thought is that the natural size of businesses these days are actually much smaller than they are now and that the advancements in technology and the ease of addressing markets via the internet and other means makes, for the most part, large companies obsolete. The only thing limiting the disappearance of these dinosaurs is regulations and artificial barriers such as the inability of small businesses to negotiate in pools for health care and anti competitive actions like NAR”s management of the MLS. I think we would live in a better world if there was more credit unions and medium sized business and a lot of the foolishness from the past twenty years could have been avoided…

  16. willid3 says:

    not buying that regulation stop formation of new businesses. unless of course you dont care if your new bank, utility , insurance, etc will be around when you need them. the idea that small business are inherently better than big ones (or vice versa) is wrong. neither is. while we can see lots of fraud etc from big ones. we have seen just as much from smaller ones too. nor i am convinced that there is a ‘natural’ size to a business, which by nature is an artificial construct. what tends to kill off older businesses is a major changes in economic environment (after if you are going to compare then to dinosaurs you best also check how long they lasted. several million years is a lot longer than we have) or some new technical change. like the car vs horse. or wooed vs electricity. and not really sure that small business ever really wants into that health care or any other benefits at all. the only reason any of those exist is because during WW2 it was all that business could do to entice or encourage employees. and they will be quite happy to stay away from any of that. now you could complain that they dont have access to the same level of credit. but thats a market based thing, not subject to change

  17. Let us not overlook the fact that the small, independent business man or woman creates more than 80 percent of all the new jobs and employs more than half of our total work force.

    -Ronald Reagan, 4/28/1981:

  18. patfla says:

    I was reading about the same issue elsewhere earlier today.

    Where was that … ah, here:

    But I object to labeling any business first and foremost as a “job creator”. Why does any business – large of small – hire more employees? Because they want to hire more employees? No, because they want to grow (and/or maintain) their businesses and make more profits. When did the term “job creators” appear? Only recently in its highly politicized current sense.

    You could also look at labor as a social good that’s provided to those who wish to create or build businesses. Just like roads; transportation infrastructure generally (which now includes the web); schools to educate workers; laws governing markets (so someone else hopefully doesn’t steal your business); etc.

    Society wants to provide both. Both businesses themselves and the resources those businesses need. Where would Bill Gates be if other people hadn’t built the microprocessor and the PC? Where would Warren Buffett be if US capital markets weren’t so deep and rich? These guys saw opportunities; they had brains (lots of desire – and no small amount of aggressiveness); and they followed those opportunities. Society gave them the entire playpen in which they then frolicked.

  19. carleric says:

    Demand for small cost-ineffective, unique operations needed by big companies helps create some small niche businesses but in general small companies add more employees, especially during successful start-ups, as compared to former big businesses which seem to specialize in downsizing. At least that has been my experience and observations here in the Inland Empire

  20. VennData says:

    Ronald Reagan,

    So why did you raise employment taxes on them, both workers and small businesses as president?

  21. par1 says:

    So the Repubs sometimes concede that small businesses generate the jobs but also claim that as S Corps they’ll suffer most from any increase in rates on >$250K incomes – does anyone have data on what net incomes these S Corps actually produce? I have a feeling that once you exclude high-earning professional firms (lawyers, CPAs etc) you’re left with younger companies and mom-and-pops that are probably not that profitable, but I have no facts either way.

  22. SF says:

    My son, about six weeks back, below. The reference to decent lunches in NH refers to the fact that I often drive the 15 minutes from my house in VT to Walpole NH to get lunch.

    Romney warned us that the regulation that liberals are pushing for will end up hurting small business owners the most. He spoke on behalf of America’s working class:

    “I know one small business owner that begins work early in the morning and works late into the night. Like average, hard working Americans such as myself he earned his education at an elite prep school and got his degree from an elite college in Massachusetts. But under the Obama regime this small business owner has been crushed. He has been reduced to only one imported luxury sedan and just one measly vacation home. High gas prices have made it harder to leave socialist Vermont and tax-and-spend Connecticut to get a decent lunch in patriotic New Hampshire. If elected I promise to end regulation and give America back to the blue collar citizens that have for decades been the backbone of our economy: the trader.”

  23. willid3 says:

    thats his working class??????????

    he doesn’t know any of them at all then.

    which is what you would expect when you have 250 million dollars in net worth

  24. Lariat1 says:

    “And according to Hurst and Pugsley’s survey evidence, the majority of small business owners say that’s precisely their intent–they didn’t start a business for the money but for the flexibility and freedom. Most have no plans to grow.” Who are these people? Didn’t start a business for the money? Flexibility and freedom? I can only believe this, if your small business is in reality a “hobby” and/ or your significant other brings home the bacon and the benefits.

  25. Joe Friday says:

    Only about 2%-3% of small businesses (including S Corps) would see any tax increases, which of course means 97%-98% would remain unchanged.

    In other words, it would impact the wealthy, whose incomes went up so dramatically while their taxes dramatically declined.

  26. Frilton Miedman says:

    Where the entire pivot of “job creation” is around who gets tax breaks, why not just offer tax incentives directly in exchange for jobs created?…really, what’s so complicated about that?

    The answer, we all know, is that money buys law.

  27. ToNYC says:

    When the job seekers figure how to arrange their resources skills to provide better value to a self- appropriate product’s natural buyer, they become job creators. It’s a pioneer’s world this 21st Century and the survivors know it.

  28. Brent_in_Aurora says:

    The article is about fact checking, or the lack thereof. The solution is to have a database of fact checked authors so that it is easy to check. My suspicion is that a serial liar will continue to lie, as will someone who values his reputation. The cream rises to the top as it always has.

    There are also some interesting attempts to solve the veracity problems of the internet, such as On the other hand, it makes pulling the “do you know who I am” routine more difficult.

  29. Jim67545 says:

    par1: I don’t have hard statistics but in 25 years of doing small business lending, out of literally hundreds of businesses I can only think of about a dozen business owners (or CEOs with a controlling interest in their company) who made more than $250k. These were either businesses with 50+ employees or individuals (doctors especially) with unique training. Of course, this was in a not very high income area.

    My pet peve with all of this is trying to borrow the general warm feelings people have toward “small business” and wrap that around those EARNING more than $1MM a year alleging that taxing them more will hurt small business owners. I would wager that 99.9% of all small business owners would kill for that kind of income. In my experience a typical small business person is doing really well if they earn $50k to $100k.

    Also, the press (God bless their ignorance) commonly refers to those EARNING $1MM as “millionaires.” Of course a millionaire is someone with a NET WORTH of $1MM or more. In all probability, someone with an annual income of $1MM is also a millionaire severalfold. Consider, if you had $1MM in liquid assets and no debt (a millionaire) and could earn a 10% return on your assets, your annual income would only be $100,000.

  30. victor says:

    The uber rich, with few exceptions indulge in frivolous consumption with limited benefits to the society at large, but with great ego boosting effects for themselves. Those who have created their wealth via “honorable” endeavours (Steve Jobs r.i.p) and/or those who are giving away their fortunes (Bill Gates, Buffett) are fine examples of the “only in America” theme. But many (George Soros) are pure parasites on our society. Politically (this may come as a shock to some) they increasingly take cover behind the Democratic Party thus deftly getting full passes from a sympathetic media for their perceived sins (high net worth/incomes coupled with low taxes).

  31. [...] Picking On the Job Creators Barry Ritholtz [...]

  32. par1 says:

    Jim67545: thanks, that confirms my impressions. And I second your criticism of the media and add that they need to stop talking about raising taxes on “people making more than $250K” (which implies, and I’ve heard rightwingers who know better deliberately confuse the issue, that once you get to $251K then all your income is subject to higher rates) rather than “levels of incomes over $250K”. (Even that is strictly accurate either because of deductions etc. of course.) So the effect on “small business job creators” is actually even smaller.

  33. DeDude says:

    Funny thing is that the only real job creators are consumers. Yes businesses (large or small) may hire people, but they only do so if they have someone purchasing their products or services. So without consumers it all stops no matter how brilliant the business owner is. How about the other way? – would the world have a lesser GDP if Steve Jobs and Apple had never existed? No it would not, people would simply have spend their money on other do-dads and do-hickies sold by other companies (maybe with an orange or a pear symbol). Even someone as creative, smart and productive as Steve Jobs did not “create” any jobs, he simply moved money and jobs from one area (that he “outcompeted”) to another (and was outrageously over-compensated for this “moving service”).

    By the way the higher the taxes on rich people the bigger the incentive for them to invest and create some jobs with that money – because you can deduct your investments from taxable income. I say lets tax income over 1 million with a 100% rate for the next 2 years, then you would see how creative people would get at using their income to invest and create jobs. So if these “job creators” use their money to create jobs they get rewarded, if they just sit on it they get punished – that should be simple enough for even Romney to understand.

  34. Here is an interesting take on the so-called job creators (SlaveMasters):

    Mission Accomplished: The Reagan Occupation and the Destruction of the American Middle Class
    by David Michael Green | June 25, 2010

    Eighty years ago, something occurred in America that was never supposed to happen. An aristocrat came to the presidency and engineered a policy revolution that created a broad and prosperous middle class where it had not existed as such before.

    To do this, Franklin Roosevelt and his party had to rewrite the existing rules of wealth redistribution in the United States such that the traditionally fantastically wealthy overclass (which had grown even fatter as the industrialism of the prior century concentrated wealth yet further) would become merely tremendously wealthy from that point forward, in order to leave enough for others to live a decent life.

    Needless to say, this rankled the country club set, but, remarkably, they more or less made peace with this development during the early decades of the post-war era, and largely cooperated with the new economic order. So did their political representatives. The Eisenhower administration was the first chance after twenty years of the New Deal to dismantle the newly created American welfare state, and Ike not only refused to take that opportunity, but famously labeled those in his party who wanted to as “stupid”. . .

    The goal of the right – which cares about America about as much as it does about Burkina Faso – has been to restore the economic order last seen under Herbert Hoover, in which a tiny minority possess vast sums of wealth and there is (therefore) essentially no remaining middle class. It is nothing short of a breathtaking display of a world class greed, worthy of the ages.

    * SNIP *

    Next, inevitably, will come entitlements. Indeed, most of the states in the union are already heading that way, cutting pensions for employees. Not to mention certain low priority areas like education, which is getting slashed from California to New York. How long can it be before Medicare and Social Security are put on the chopping block? And why? Because we have our priorities good and straight, pal: a morbidly bloated military and pathetically low tax rates for the wealthiest among us comes first. Then, if we could somehow do it for free I suppose we could allow decent education, or health care, or retirement with dignity for our elders. But, of course, since that can’t be done without cost, those things must go.

    The other strategic initiative now reaching fruition during the right’s three decade-long campaign to massively redistribute wealth in this country – literally, the crime of the century – is the evisceration of the state. This must be done (or, more accurately, it must be done in some respects but absolutely not in others) because the state is the only force capable of standing up to the power of concentrated wealth, and because the state sets the very rules by which such wealth either is or isn’t concentrated. It also must be done because the state nominally speaks for the public and the public interest, as against the private interest.

    Since Reagan, regressive puppet politicians have been spouting anti-state rhetoric and sarcastic venom with increasing intensity. Saint Ron of Hypocrisy told us that government was the problem, not the solution, seemingly without noticing the irony of his massive military build-up or the government-enforced restrictions the right favors on everything from abortion to gay marriage to euthanasia. Now, as gutted and corrupted regulatory institutions have permitted massively harmful meltdowns ranging from Wall Street to coal mines to oil wells, we are forced to listen to sermons from those on the right about the incompetence of government. Well, yeah. If in fact you staff government regulatory bodies with industry shills who are explicitly ordered not to actually, er, regulate, and if you legislate away their power to effectively do so anyhow, and if you pulverize conscientious whistleblowers to within an inch of their lives, then guess what? That little bit of government will in fact be incompetent. In fact, it will be nearly as bad at the competence thing as, say, all the big banks on Wall Street (which had to be rescued by the, uh, government), or all the big auto companies in Detroit (ditto), or British Petroleum, or Enron, or the savings-and-loan industry, or…

    Bad policy choices by self-serving politicians? Would that ’twere only thus.

    We are occupied.

  35. rjbcg says:

    Could you dig into the data a bit more?

    Specifically, the graph shows net changes…which are total new jobs less job eliminations. Is there a data source that you can share that shows the two subtotals before subtraction?

    Is there something that distorts the net measure?

    Such detail might reveal that small business job losses are particularly hard to track if some of them are the single person LLCs as described by one of your commenters. Does BLS even know when such an LLC goes out of business or the sole proprietor dies?

    You get my drift: it’s possible that big businesses created lots more jobs than the smaller firms, but that they (in a net sense) also eliminated more leaving us with a small deficit.

    Invictus: I can probably (time permitting) take a closer look at the data and see what else I can glean. Another possibility that gets bandied about is that ADP fails to capture the job growth of mega-cap companies because many of them do their payrolls in-house. While of course that’s possible, I don’t have any data to analyze, and can only go on what’s out there.

  36. end game says:

    Donald Trump hires one apprentice per year. Some job creator.

  37. end game says:

    SF Says: You quote Romney as your source for factual information?

    Couldn’t be a better comment in support of Invictus’ point about our living in a relatively fact-free environment where folks are comfortable spinning whatever tales fit their agenda.

    Surveys of small businesses asking about their biggest problems including regulations reveal that they don’t know what the #@X! you’re taking about. They list “lack of demand” as their biggest problem. Regulations are third or fourth on the list, at a frequency that is about the same as when both Bushes were in office. They have a hard time pointing to any regulations that are holding back their growth or hiring — it’s the fact that they don’t have any customers.

    So the “gubmint regulations” story is really all just spin to promote an agenda — and you’re just regurgitating the spin. Why not find out the truth for yourself?

  38. victor says:

    OK, HarlowMonrowe: so, if we could just cut our military budget from the current 4.9% to say that of France’s and further jack up the tax on the wealthy to say that of France’s we’d be OK then? By the way: Enron did go belly up (no bail out, deserved its fate) and our Fed Gov unfriendly to the fossil fuels industry as ever did “hold the boot on BP’s neck” for the collossal damage it caused. Your search for blame (it’s the R’s), has been successful because as the adage goes “it is always successful”. CA and NY? last I looked they’re one party states….so what gives? The R’s are irrelevant there, see the recent Economist issue. The goal of the right as you see it is to make sure the uber rich become even richer? And what political affiliation do most of the uber rich pridefully claim? Not R, the bad R!!! Finally take a look at the sad the state of affairs in the inner cities/barrios and see for yourself (no R’s welcome there) do you like what you see? Leave the tired “it’s the R’s fault” line and get real: it is NOT L vs R anymore it is Up vs. Down now and if you want to fix the “inequities” then create an environment where the the Down’s can move up, up, up; for God’s sake even the Chinese Communist Party figured THAT out (unlike Castro who’s still “thinking”).

  39. DeDude says:

    Why should we give the “job-creators” a raise when they have done such a terrible job of creating jobs. Are they Banks or something?