An Empirical Assessment of the Contribution of Small Business Employment to U. S. State Economic Performance

Small business proponents regularly couple their arguments for favorable government policies and reduced tax and regulatory burdens, to the presumed benefits of increased proportions of small versus large-sector employment. Though regularly espoused at both the state and national level, these presumptions regarding the benefits of small business employment remain an empirical issue. Are the presumed benefits a reality? A panel analysis of 48 U.S. States for a ten-year period was used to evaluate the contribution of small businesses to growth in productivity, growth in Gross State Product (GSP), unemployment, and wage inflation at the state level. The system of simultaneous equations revealed that states with higher proportions of very small business employment do indeed experience higher levels of productivity growth, and Gross State Product growth, while having less wage inflation and lower unemployment rates.