Small businesses (those defined as having 500 employees or less) define the economy of the U.S. More Americans work for a small businesses than corporations or the government, combined. Small businesses are unique in that they are often independently owned by entrepreneurs. Here are some amazing facts about small business and entrepreneurship in America… and a few reasons why small business is in a lot of trouble.

Amazing Facts About American Small Businesses

Dissecting economic data to determine the health of small business in early 21st century America is no small task. In recent years, economists and social scientists have been creating more elaborate models and algorithms to plot the progress of small business and entrepreneurs. This has only become more difficult following the Great Recession in 2008 when more and more unemployed opened their own home businesses to generate income.

While the entrepreneurial spirit of the “nonemployer” business is to be admired, people need jobs and small business provides them. And unfortunately, the state of small business in America is not good.

Small Business Is In Decline

No matter how you look at it, small businesses are closing. The trend has been ongoing for years as globalization and technology (mainly the Internet) have changed consumer preferences. However, the biggest hit to smaller independent entrepreneurs was the 2008 housing crisis. As banks increasingly realized their losses, they were much more reluctant to lend to small businesses that often rely on access to credit to conduct their business.

After a few years, the trend was clear. In 2007, the year before the recession, there were more than 44,000 new business establishments created in the United States. (This includes everything from franchises and single location businesses to mines and new chain stores.) By 2013, there were less than 30,000 new establishments created. This decrease is remarkable, especially when considering the number of establishments that closed over the same period. In total, the U.S. saw a net reduction of establishments between 2008 and 2013. The country has yet to fully recover.

Unemployment Rises When Small Business Fails

People in America work for smaller employers. And we’re not talking about the rise in “nonemployer businesses” that are effectively contractors for other business. Of the more than 5.68 million employers in the U.S. in 2011, over 99 percent of them had fewer than 500 employees. Businesses with less than 20 workers made up almost 90 percent of all employment. Unfortunately, the same recession in 2008 closed a lot of these businesses.

In 2009, after the effects of the housing crisis became more apparent, the U-6 measure of unemployment (the one that looks at ALL aspects of unemployment, including those that have stopped looking for work) jumped to 16 percent! It even increased to 16.7 percent the next year. This means that 16 percent of Americans were out of work after the recession! How bad is this really? In 2008, the U-6 rate was half the amount at a reasonable 8.3 percent. Not only did people lose their jobs as a result of the recession but some were so discouraged by the state of hiring that they simply gave up looking for work all together.

Wages Fall When Small Businesses Close

It’s no secret that people have less money nowadays than we did ten years ago. Most of the increases in real wages over the past decade occurred before the housing crisis. Though inflation has been low as a result of artificially low interest rates (also known as quantitative easing), it has still increased faster than wages. To put it another way, money is worth less today than it was before 2008. If you haven’t received substantial raises in the past seven years, your effective purchasing power is at all time low levels.

So how does this relate to small business? Well, the decreased number of businesses meant an increase in the labor supply. People that held steady jobs for decades at legacy small businesses (construction companies and car dealerships are excellent examples) suddenly found themselves back in the job market. As a result, the remaining businesses that were hiring, were able to offer much less. Of course, there are exceptions. People in the oil industry enjoyed relative stability until 2014 when prices per barrel started to fall. Anyone associated with higher level technical ability still has earned substantial money in recent years.

Conclusions

The success and proliferation of small business is a benchmark of entrepreneurial performance. Without entrepreneurs building businesses, average people lose quality job opportunities. This article probably should have included more charts, anecdotes, or just simpler information. But the truth remains the same. American small business is in decline. American workers are earning less. The next generation needs to be prepared correct this. Simple programs like Lemonade Day show kids the remarkable power in being your own boss. Being an entrepreneur is the freedom to control your own destiny. It also happens that, along the way, entrepreneurs tend to employ most of the country.