Small Firms, Employment, and Federal Policy

March 12, 2012

New Small Firms Account for a Disproportionate Share of Net Job Growth

Small firms, widely believed to promote job growth, both create and eliminate jobs at higher rates than large firms do. Although small firms account for a disproportionate share of net job growth, that greater growth is driven primarily by new small firms.

In Recent Years, Small and Medium-Sized Firms Suffered Disproportionately Greater Job Losses Than Large Firms


Firm Size, by Employee Count Change in the Number of Workers Between December 2007 and December 2010
Fewer than 50 workers -7.1 percent
50 to 499 workers -8.1 percent
500 or more workers -5.4 percent


Varying Policies by Firm Size Has Advantages and Disadvantages for Job Growth

Policies that help reduce the cost to small firms of complying with federal regulations could promote employment growth. But policies favoring small firms could also discourage them from growing in order to retain that preferential treatment. Moreover, easing some regulations for small firms could cause certain problems, such as pollution, to persist more than if regulations were applied uniformly across firms of different sizes. 

Current Federal Laws and Regulations Give More Favorable Treatment to Small Firms Than Larger Firms in Many Ways

Small firms receive more favorable treatment than larger firms through:

  • A reduced capital gains tax for investments in small firms,
  • Tax provisions having the effect of allowing small firms to immediately deduct a larger share of their costs for certain capital investments,
  • Assistance from the Small Business Administration, and  
  • Exemptions from some regulatory policies, such as the Family and Medical Leave Act of 1993.