An International Comparison of Small Business Employment

http://www.cepr.net/documents/publications/small-business-2009-08.pdf

An International Comparison of Small Business Employment
John Schmitt and Nathan Lane
August 2009

An important part of our national identity is built around the idea that – thanks to low taxes, limited regulation, unfettered labor markets, and a national spirit of entrepreneurship – the United States offers an environment for small business that is unmatched anywhere else in the world.

The international economic data, however, tell a different story about the state of U.S. small business. By every measure of small-business employment, the United States has among the world’s smallest small-business sectors (as a proportion of total national employment).

One interpretation of the data presented here is that self-employment and small-business employment may be a less important indicator of entrepreneurship than we have long thought. Another reading of the data, however, is that the United States has something to learn from the experience of other advanced economies, which appear to have had much better luck promoting and sustaining small-business employment.

One plausible explanation for the consistently higher shares of self-employment and small-business employment in the rest of the world’s rich economies is that all have some form of universal access to health care. The high cost to self-employed workers and small businesses of the private, employer-based health care system in place in the United States may act as a significant deterrent to small start-up companies, an experience not shared by entrepreneurs in countries with universal access to health care.

We use the most recently available, internationally comparable data from the Organization for Economic Cooperation and Development (OECD) to measure the share of employment in small businesses in 22 rich democracies. The OECD data demonstrate that:

• The United States has the second lowest share of self-employed workers (7.2 percent) – only Luxembourg has a lower share (6.1 percent). France (9.0 percent), Sweden (10.6 percent), Germany (12.0 percent) the United Kingdom (13.8 percent), Italy (26.4 percent) and 14 other rich countries all have higher proportions of self-employment.

• The United States has among the lowest shares of employment in small businesses in manufacturing. Only 11.1 percent of the U.S. manufacturing workforce is in enterprises with fewer than 20 employees. Eighteen other rich countries have a higher share of manufacturing employment in enterprises of this size, including Germany (13.0 percent), Sweden (14.4 percent), France (18.0 percent), the United Kingdom (18.1 percent), and Italy (30.9 percent). Only Ireland (9.6 percent) and Luxembourg (8.5 percent) have a lower share of manufacturing employment in enterprises with fewer than 20 employees. (Raising the cutoff for a small business to fewer than 500 employees does not significantly alter the relative position of the United States.)

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