Economies Of Scale

Just How Big Is America's Small Business?

Why we need to help vulnerable small and medium businesses

by Feifei Wang

Dr. Feifei Wang is an Assistant Professor of Economics at Niagara University.

The March unemployment report shows small businesses lost 90,000 jobs. According to the U.S. Chamber of Commerce, one in four small businesses have closed temporarily due to Covid-19, with more expected.

The U.S. has more than 30 million small and medium-sized businesses (SMEs), comprising 99.9% of all firms and 47% of all private sector employees. Based on U.S. Department of Labor Bureau of Labor Statistics data, people working for SMEs make nearly 31% less than those at large corporations.

Given that essential consumption is virtually the same for all wage earners, SME workers are disproportionately burdened. Food, housing, transportation and healthcare expenses make up about 93% percent total annual spending for those workers, but only 70% for non-SME employees.

Many Living Paycheck To Paycheck

SME employees earn less, spend the same for what they need and are less able to save. Nearly four in five live from paycheck to paycheck. They are the backbone of our economy, creating two-thirds of net new jobs and accounting for roughly 43% of the private economy.

SMEs have lower resilience to risk and are hit harder during a recession since they are more likely to suffer cash flow problems, which affects payroll. In both 2008 and 2009 during the Great Recession, small businesses growth rates were lower than those of large businesses, -0.2% in 2008 and – 4% in 2009.

The bleak economic outlook for 2020 dwarfs that of the Great Recession due to the lock-down measures. Economists estimate that the U.S. economy will contract as much as 30% in the second quarter of this year, devastating news for small businesses.

SME employees earn less, spend the same for what they need and are less able to save. Nearly four in five live from paycheck to paycheck....

For all these reasons, it is imperative that Washington do more to help small businesses.

Not Enough Assistance…

Yes, some relief has been offered. Small-business assistance funds have been established locally and nationally. Some businesses are eligible to apply for as much as $350 billion in government-guaranteed and conditionally-forgivable loans from the $2 trillion relief package to cover eight weeks of payroll and other expenses. (But the loan application process has been plagued with glitches due to a lack of guidance and criteria in addition to technical problems).

There isn’t enough assistance in place to keep already shuttered SMEs afloat. According to R. Glenn Hubbard and Michael R. Strain of the American Enterprise Institute, the estimated cost of replacing 80% of lost SME revenue for three months is $1.2 trillion, $800 billion for two months. For those closed temporarily and others whose income has slowed considerably, more is needed.

Washington must act quickly to fix the system and ensure funds will be released to small business owners in time for them to keep their employees on payroll or re-hire some. And Congress should be hard at work developing additional programs to help these businesses and the legions of American workers who form the backbone of the U.S. economy.

 

 

Niagara University
Founded by the Vincentian community in 1856, Niagara University is a comprehensive institution, blending the best of a liberal arts and professional education, grounded in our values-based Catholic tradition. Its colleges of Arts and Sciences, Business Administration, Education, and Hospitality and Tourism Management offer programs at the baccalaureate, master’s and doctoral level.