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How Is the U.S. Economy Affected by Small Businesses? Economics Essay Example

3 pages
599 words
Harvey Mudd College
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A small business is a corporate venture that privately-owned with a small sectoral influence. Small businesses are associated with less than 500 workers. Such businesses cut across all the sectors of the economy, which require limited capital and managerial expertise to operate (Small Business Administration, 2014; Clark & Saade, 2010). Across the globe, different countries can attest to the centricity of small business in their per capita income. In the United States, small businesses have played a critical role in economic growth and sustainability.

Job creation is an attribute that cannot be separated from a small business in the United States. Almost half of the adults in the country are self-employed or work for organizations with less than 500 employees (Clark & Saade, 2010). Many small businesses emerge every year creating a demand for skilled and unskilled labor. Since the existence of small businesses is not guaranteed, these ventures close because of reduced expansion rates, access to capital, and managerial expertise. The closure leads to massive job losses; however, the rate of jobs taken away because of closure is lower than the rate of those that are added (Clark & Saade, 2010). Such a shift creates a cumulative increase in the number of jobs created by small firms. For example, between 1993 and 2008, the total net change was positive where over 20 million jobs had been created and sustained. Small businesses have offered opportunities for the young people, women, and the minority groups in the United States to find financial muscle, which in turn enhance per capita income and GDP. For example, by 2010, over 7000 businesses were under women where over 2000 Black women owned their small firms (U.S. Census Bureau, 2010).

Moreover, small business has been a source of industrial competitiveness. The commitment and strategic approach to management in some small firms have led to large-scale corporations and multinational companies in the United States. In fact, through small business, the country has been in a position to nurture an entrepreneurial culture that has transformed the economy. With the advancements such as globalization and the 4th industrial revolution, small business has become the breeding zones for innovative ideas. The key innovation in the United States can be attributed to small firm innovations. Furthermore, the increasing number of small firms have been significant in subsiding the local deficits in production of goods and services in line with the high population in the United States (Small Business Administration, 2014; Clark & Saade, 2010). The high number of small businesses enables the local governments to accumulate significant revenue through licensing, taxation, and other legal fees applied.

In conclusion, the existence of small businesses in the United States is central to economic performance. While the advantages have been limited to employment, revenue, dissemination of goods and services, and increase in per capita income and GDP, other dimensions such as skill development and innovative culture can also be traced to their existence. Nevertheless, challenges such as access to capital, managerial expertise, and competition from large-scale operators have been hampered the potential of small businesses.


Clark, M. L. & Saade, N. R. (2010). The Role of Small Business in Economic Development of the United States: From the End of the Korean War (1953) to the Present. A Working Paper: U.S. Small Business Administration. Available at:

Small Business Administration. (2014). How Important Are Small Businesses to the U.S. Economy? U.S. Small Business Administration. Available at:

U.S. Census Bureau. (2010). Estimates of Business Ownership by Gender, Ethnicity, Race, and Veteran Status: 2010. The U.S. Census Bureau. Available at:

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