According to the U.S. Small Business Administration, firms with less than 500 employees created 88 percent of the net new jobs in the United States between 1990 and 2003 (the last year for Census Bureau data). During this 14-year period, the share of total jobs created by small businesses was never less than 50 percent and was sometimes double the employment total.
Large corporations are reluctant to hire because it is so expensive to do so. Think health care and pension costs, as well as payroll add-ons for unemployment compensation and worker disability. The modern cost-cutting pressures of globalization also force large firms to take a highly cautious hiring approach.
But newly minted entrepreneurs don't face all these costs -- at least not initially. And that is why the household survey has become so important in the 21st century economy.
Wages are rising today, so we know domestic labor markets must be tightening, not softening. To wit, average hourly compensation has risen to 3.9 percent over the past year, while average weekly earnings have grown to 4.5 percent. In early 2004, these wage measures were only up 1.5 percent.
The June Labor report also revealed a 2.3 percent annual gain in aggregate hours worked -- which is consistent with 3.7 percent real GDP growth and a 6.6 percent gain in wages and salaries. These hefty numbers will bolster consumer spending in the period ahead.
The U.S. Bureau of Labor Statistics is recognizing the importance of the small-business-driven household survey, and has suggested averaging household jobs with the corporate payroll survey to get a clearer jobs picture. Doing this yields a strong 186,000 new jobs per month over the past year, which is the key reason why the unemployment rate stands at a historically low 4.6 percent rate, with total employment now at a record high 144.5 million.
These data points hardly suggest a slumping economy. Instead, they reveal a low-tax, durable, resilient and flexible American market system that easily shifts from one sector (housing) to another (business investment). It is this American economic dynamism that separates our ongoing prosperity from the overtaxed and overregulated stutter-start stagnation of industrial economies in Western Europe and Japan.
Did someone say prosperity?