Job Creation by Small Businesses is Still Essential for
Economic Recovery

Nearly 35 years ago, when I was a “rookie” economic development professional in Xenia, Ohio, the economy was experiencing the most severe recession since the 1930’s.  At the time, the primary goal of most economic development efforts was to encourage job creation by private businesses, particularly small- and medium-sized ones.

From the mid 1980’s, as the unemployment rates declined and sporadic labor shortages appeared, this goal changed to promoting the creation  of high-paying, “quality” jobs and improving the quality of life in order to attract a “creative class” of workers. However, in 2008 as the current recession replaced the mid-1970’s downturn as the worst since the 1930’s, the economic development emphasis has reverted back to job creation in general.

Through the years, what hasn’t changed is that small- and medium-sized businesses are the primary drivers of job creation. Although not all small businesses and entrepreneurs create jobs, a percentage of them have historically been responsible for the vast majority of newly created jobs.  Firms that develop and utilize new technologies, and others that bring innovation to existing technologies and business models have typically been the job creators.
The jobs recovery will only occur when these small businesses and entrepreneurs once again begin to hire and create new employment opportunities.

The key question is when will this occur and what will it take?  The credit freeze is undoubtedly a major cause for the lack of new job creation. But what’s even more critical is the lack confidence on the part of businesses that their customers and clients will be willing and able to consistently purchase their products or services at prices that are profitable.  Once this confidence returns, these job-generating businesses should begin hiring again.

The recent increases in productivity can be traced to businesses accomplishing more work with fewer employees. There will come a time when the productivity gains reach the point of diminishing returns, and the only solution will be to hire additional workers.  

Meanwhile, for those small businesses that have survived this recession, the opportunities should be abundant. Not only will there be fewer competitors, but with interest rates at historic lows and the cost of real estate and other fixed assets at historic bargain prices, those stronger and better-managed survivor companies should experience their own robust recoveries in revenues, profits and jobs.