Small Business
The Small Business Paradox: 61 Percent of New Jobs, 46 Percent of Workers
For thirty years, small firms have created most of America's net new jobs, yet they still employ fewer than half of its workers. The gap between those two numbers explains how American business really grows.
"Small business is the backbone of the economy" is one of the few lines in American economic life that almost no one disputes. The numbers mostly back it up. But the most quoted statistic and the one that sits beside it do not seem to fit together. Understanding why they do is the clearest way to see how businesses actually grow.
By the numbers
The two numbers
There are 36.2 million small businesses in the United States, defined as firms with fewer than 500 employees. They are 99.9 percent of all firms, and they employ 62.3 million people, 45.9 percent of private-sector workers.
Over the long run they have also created most of the new jobs. From 1995 through 2024, small businesses accounted for 20.7 million net new jobs, against 13.2 million for large firms: about 61 percent of net job creation. In the most recent year measured, March 2023 to March 2024, they accounted for 1.2 million of the 1.4 million net jobs added.
So if small firms create most of the jobs, why do they hold fewer than half of them?
The answer: success graduates
The SBA's Office of Advocacy explains it plainly. Its job counts move a firm into the large column the moment it grows past 500 employees, and every job it adds afterward counts as a large-business job. The small businesses that succeed most stop being small businesses. If firms were counted by the size they started at, the agency notes, the small business share of new jobs would be greater still.
In other words, many of today's large employers are yesterday's small businesses that did well.
"Small businesses create most jobs" is true over decades. It is also true that most workers are employed by large firms. Both are accurate, and the bridge between them is growth.
The typical business has no one on payroll
The word "employer" can mislead. 82.3 percent of small businesses have no employees at all. Among those that do hire, 89.7 percent have fewer than 20 workers, and the average small employer has fewer than 10. The picture of a small business as a storefront with a staff describes a minority. The majority is a single owner, the world we explored in The Solo Economy.
The pay gap
Small businesses employ 45.9 percent of private workers but pay 38.7 percent of private payroll. By our calculation from the SBA's figures, small employers pay about $55,700 per employee, roughly three-quarters of what large firms pay. Small firms often make up the difference in other ways, from flexibility to earlier responsibility, but the gap is real and worth knowing before you choose where to work or what to pay.
Small, but global
Small does not mean local. In 2023, 97.2 percent of identified U.S. exporters were small businesses, and they shipped $588.4 billion in goods, a third of the country's export value.
The survival math
Starting is common. Lasting is the achievement. Since 1994, about two-thirds of new employer establishments have survived two years, about half have survived five, and about a third have survived ten. Reaching five years changes the odds: nearly 70 percent of those go on to reach ten. These figures count establishments, individual locations, rather than whole firms.
Part of what weighs on small firms is overhead that scales badly. Federal paperwork cost small businesses more than $81 billion in 2025, and more than 80 percent of it came from the IRS. For every dollar of paperwork cost, small businesses generated $265 in revenue. Large businesses generated $572.
What it means for owners and would-be owners
- Most businesses start and stay small, and that is normal. Four in five have no employees.
- The first five years are the test. About half of new employer locations make it, and those that do have strong odds of lasting another five.
- Growth is what the numbers reward. The small businesses that matter most to the economy are the ones that eventually stop being small.
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Sources
- Small Business Administration Office of Advocacy, Frequently Asked Questions About Small Business, 2026
- Small Business Administration Office of Advocacy, 2025 Small Business Profile, United States
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