Few dare to challenge the conventional wisdom that small business is the engine of job creation. Indeed, in the United States, the image of the small business owner left largely unfettered to create novel products and services sits on the same cultural plane as baseball and apple pie, and one would be hard-pressed to find a policymaker who would openly question the wisdom that most new jobs arise either directly or indirectly from these small businesses. This near religious belief in the small business owner as job creator yields a steady stream of policies offering tax relief to small businesses, often specifically tied to their behavior as job creators, as well as broader proposals that aim to cut the red tape that could hinder a business’s ability to raise capital or to safeguard its intellectual property. Not surprisingly, these policies and their potential to improve macroeconomic outcomes become particularly salient during times of high unemployment.
Luckily, there are still those who refuse to accept this conventional wisdom. They usually point to meticulous research on job creation that shows that the large share of employment growth typically ascribed to small businesses more rightly belongs to new businesses—entrepreneurs. And, of course, while most new businesses start out small, most small businesses are not all that young. However, even astute observers are likely to miss the second flaw in the notion that policy that props up small business will necessarily improve our nation’s economic health. That is, after one sorts out the issue of the quantity of jobs created by new businesses, one should consider the quality of these jobs. Are these really the sorts of jobs that will materially improve the lives of their incumbents, thereby setting off a chain reaction that ultimately ends in higher aggregate demand and greater economic activity?