Economists and researchers are locked in a new debate on the importance of small business to the American economy.
A growing number of skeptics are challenging assertions, about a decade old, that small employers create most new jobs-up to 8 out of 10 in some years.
The skeptics cite different job creation figures from academia and also question research methods used by small business advocates.
The squabble has political overtones. In recent years, statistics showing significant job creation by small businesses have influenced state and local governments to widen assistance and enact tax breaks to small companies. In Washington, small business lobbyists have used the figures to fight attempts to raise the minimum wage and impose mandated worker-protection measures on small employers.
The lobbyists have argued, with considerable success, that such measures would stifle the nation`s most important job creation machine.
Small business` job contributions were first spotlighted 10 years ago through studies by David Birch, a Massachusetts Institute of Technology researcher and now director of MIT`s Center for Corporate Change and Job Creation.
Birch`s research found that between 1969 and 1976, companies with fewer than 100 employees created 80 percent of new private sector jobs. Then, in 1987, Birch said firms with fewer than 20 employees created 88 percent of all new private sector jobs between 1981 and 1985.
Partly because of Birch`s work and partly because some members of Congress were pressured by their small business constituents to follow up on this unprecedented research, the U.S. Small Business Administration`s Office of Advocacy began compiling data.
Congress gave the SBA $1 million for this work, and SBA has come up with small business job creation figures.
SBA`s figures haven`t jibed with Birch`s, which is one reason critics contend the figures have been hyped.
``The economy contributions of small business have been oversold,`` says Harvard University economist James Medoff.
Charles Brown, of the University of Michigan, has complained that the numbers fail to take into account the fact that jobs in small firms tend to pay less than those in big corporations-about 10 percent less, in general.
Partly because of such criticism and partly because of further research, Birch and SBA have come up with new figures and clarifications.
Until the late 1970s, it is generally agreed, the health of the economy depended in large part on giant corporations. The number of self-employed Americans had dropped to 7 percent of the work force from about 20 percent as corporations expanded and took on more and more workers. Small business` share of employment dropped, too.
But the picture changed dramatically in the late 1970s and early 1980s. New and small growth companies began popping up, selling everything from computers to clothing and offering a variety of new financial and
From 1976 to 1984, large manufacturers cut about 300,000 jobs, but the rising number of small manufacturers added 1.2 million.
The latest research shows that job creation by large and small companies varies in a business cycle.
Thomas Gray, SBA`s chief economist, said ``there is a clear cyclical pattern of job creation. Small businesses appear to produce relatively more jobs near the turning points of a cycle and during the initial expansion phase of a cycle. Large businesses appear to perform best during the latter stages of an expansion period.
``During the five two-year periods between 1976-86, the period covered by our Small Business data base, small and medium-size businesses appeared to have done better than large businesses in four of the five two-year periods.
``Small businesses with fewer than 100 employees contributed from 37.7 to 88.8 percent of net new jobs in these two-year periods. In the entire 10-year period, small businesses representing about half of private employment, produced slightly more than 60 percent of new jobs.``