Kasich is Dead Wrong on Small Business Job Creation

Time and time again, when I listen to John Kasich, he is simply factually incorrect.  For example, in a recent stump speech, he said small businesses creates most of the jobs in this country (see lengthy video link below). The problem is that was only true when I took economics in the 1970's.  Ever since then, large businesses such as Target, Wal-Mart, Home Depot, etc. have been the primary job creators in America; often at the expense of many small businesses. For example, the following chart prepared from the Bureau of Labor Statistics data shows that most of the job creation and employment had come from large companies over the 21-year period from 1990 to 2011.

When someone starts a small business, generally only a few jobs are created.  For example, if someone starts a Karate instruction school or a tanning salon, usually, the owner is the only employee. Even if the business grows over time, maybe only one or two instructors or salon employees will be added over time. However, when Wal-Mart opens a super-center, more than 300 people are instantly employed.  A single McDonalds would add more than 60 workers.

There is another problem with small businesses:  The rate of failure.  In the first year, one in every four new businesses fail.  By year four, 50% of new businesses will have been kicked to the curb, and by the end of 10 years, only 29% of new businesses will be left standing.  In other words, 71% of the jobs created by small businesses will be gone at the end of 10 years.

The biggest reason for failure (49%) is incompetence;  with an additional 30%  due to the lack of managerial experience. With this in mind, I would really like to know what steps Kasich could take to somehow legislate human failings out of existence and minimize job losses at the small business level.

The reality, is that the focus of job creation should be providing a better environment for large corporations.  Lower our world's highest corporate tax rate.  Minimize or eliminate international trade barriers.  Allow corporations to return the more than $2 trillion in overseas profits that are just parked there to avoid paying additional U.S. taxes.  This way, instead of using that money to build their businesses in other countries, those profits would be a major cash infusion into our own economy.  Lastly, we have to improve our educational system so that we don't have to import millions of workers to fill high-paying, science-technology-engineering-math (STEM) jobs through the work visa programs. 

References:

Video: Kasich: https://www.youtube.com/watch?v=cA9BTE4fJxs

Chart Source: Getting Straight on Small Business Job Creation: Firms vs. Establishments: http://www.huffingtonpost.com/jared-bernstein/small-business-job-creation_b_1685869.html

Startup Business Failure Statistics: http://www.statisticbrain.com/startup-failure-by-industry/

Big U.S. firms hold $2.1 trillion overseas to avoid taxes: http://www.reuters.com/article/us-usa-tax-offshore-idUSKCN0S008U20151006

37 percent of Silicon Valley foreign-born: http://www.washingtonexaminer.com/37-percent-of-silicon-valley-foreign-born/article/2583195

The Decline of Small Business Employment in America

Starting a new business has always been a risky endeavor.  Today, 25% of all new businesses fail in the first year. 50% in the first 4 years, and by year 10, only about 29% are left standing.  With odds like that it's no wonder that business creation is in decline in America.  What person or lender is going to be willing to risk everything by funding something that could easily fail in the first year, and increasingly, every year thereafter?
Still -- except for recessions -- this country has always been able to create more new jobs from startup companies than job losses due to failed ones, as noted by this chart from the Bureau of Labor Statistics' Business Employment Report from 2009:

Most notably from the above chart, employment from new businesses has been steadily declining since 1999 when new business job creation peaked in America at 1.95 million.  Then, at the worst point of the Great Recession, it fell to a twenty-year low of just 1.15 million.

Following the end of that recession, and except for a single-quarter aberration in 2012, job creation somewhat rebounded and has been pretty much moving sideways at around 1.3 million jobs; with losses mostly remaining lower than those being created.

Whether or not this is a trend or merely a pause in pre-recession declines is anyone's guess.  It could be that the pause is a result of the reopening of once-profitable businesses that had failed previously during the recession.

Even so, job creation from new businesses is nowhere near the high of the 1990's; or, for that matter, 2004 levels.  Some say the decline is due to the high cost of compliance with local, state, and federal rules governing businesses and their operations.  Others say the high failure rate has made less money available for new ventures.  Another might be the rise of the "big box" stores like Walmart and Target that are crowding out small retail businesses. Still, many think the pool of new ideas is just logically shrinking.  Whatever the case, small businesses and their share of jobs are on the wane:

As this graph shows, small businesses -- businesses under 250 workers -- have declined from providing 51% of all jobs in the U.S, to just a little over 47%.  The simple reality is that big companies have become the engine for job growth.  The era of small businesses being the job creators is over.  The American Dream may have become just that -- a dream.

References:

Startup and Business Failure Statistics: http://www.statisticbrain.com/startup-failure-by-industry/

Entrepreneurship and the U.S. Economy: http://www.bls.gov/bdm/entrepreneurship/entrepreneurship.htm

BUSINESS  EMPLOYMENT  DYNAMICS  – THIRD  QUARTER  2009: http://www.bls.gov/news.release/archives/cewbd_05202010.pdf

BUSINESS  EMPLOYMENT  DYNAMICS  – THIRD  QUARTER  2014: http://www.bls.gov/news.release/pdf/cewbd.pdf