Study: Mom-and-Pops a Drain on the Economy

President Obama recently scarfed a “super sub” to show his support for mom-and-pop businesses, crediting the little guy with the majority of U.S. job growth. Every modern president has done the same. There’s just one problem: it isn’t true, according to a new study published by the National Bureau of Economic Research. The work—the first to track employment by age and size of the hiring company—found that small, mature firms (those with fewer than 500 employees and at least 10 years in operation) are actually net drags on job growth. On average, between 1992 and 2005, they destroyed more salaries than they created. In 2005, for example, small businesses lost about a million jobs, even as the overall economy expanded by about 2.5 million. Startups accounted for nearly all the growth.

New businesses are often tiny, of course, at least at first. But the distinction between them and small, mature firms is hardly semantic, says economist John Haltiwanger, who coauthored the study. His research suggests that the policy focus should skew young, nurturing the next big firms—which actually employ the most people—rather than tending an old crop of small ones.

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