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The Role of Small Business in the Economy

If you are employed by a small business, are a small business owner yourself, or are an aspiring entrepreneur, you have a lot to be proud of. Small businesses play an important role in supporting the economy and helping it grow. Here are some of the reasons why they are so vital to the economy.


Politicians frequently describe small businesses as the backbone of the economy. There is one main reason why they have earned that reputation, and that is due to their role as job creators.


“Although just 21.5 percent of all small businesses are employers, almost half of the nation's private sector workforce (49.2 percent) is employed by small business--that's 120 million people!” states Jared Hecht on “And since 1995, small businesses have been responsible for creating two out of every three--or 64 percent-- of net new jobs in our country.”


When new jobs are created, payroll dollars are pumped into the workforce. Those workers then spend money, further strengthening the economy through consumer spending. Furthermore, job creation boosts income tax and payroll tax, helping the government improve its own financial standing.


Small businesses aren’t just creating jobs, they are leading the way in the effort to bring innovative ideas and products to market. Furthermore, they also excel in the technology sector.


The United States Small Business Administration (SBA) sought to analyze innovation by conducting a study that examined firms that received 15 or more patents over the course of four years. These were named “high patenting firms.” The results of the study showed that small businesses were responsible for creating 16 times more patents per employee than the larger firms in the study.


“Considering that small businesses account for 43 percent of high tech employment, it's not surprising to note that tech startups account for a significant portion of that innovation,” states Hecht.


It is not only the owners and employees of small businesses that are making strides to better the economy. Consumers who interact with small businesses also do their part.


“When consumers patronize local small businesses, they are essentially giving money back to their local community,” states J. Mariah Brown of  Demand Media. “A thriving local business will generate high levels of revenue, which means that the business will pay higher taxes, including local taxes. This money is then used for local police and fire departments as well as schools.”


There are also small business benefits that don’t necessarily transfer into statistics. Benefits such as possibly improving a town’s reputation, attracting homebuyers and a more personable hiring process.


Although these benefits are hard to measure, it is easy to see that small businesses truly do form an important support structure for the economy.


Includes copyrighted material of IMakeNews, Inc. and its suppliers. All content contained in this newsletter is for informational purposes only and should not be relied upon to make any financial, accounting, tax, legal or other related decisions. Each person must consider his or her objectives, risk tolerances and level of comfort when making financial decisions and should consult a competent professional advisor prior to making any such decisions. Any opinions expressed through the content in this newsletter are the opinions of the particular author only.