The Power Of Small Business In Connecticut

WNPR’s year-long Small Business Project begins this month by examining and challenging commonly-held assumptions. We frequently hear that small business is the engine of Connecticut’s economy. WNPR’s Harriet Jones reports on whether there is data to support that claim.

Everyone says it:

Dannel Malloy: “So as governor, understand that my focus will in fact be creation of jobs, and the support of small businesses, which are going to create most of the jobs in this state.”

I mean, everyone says it:

Barack Obama: “Small businesses are the heart of the American economy. They’re responsible for half of all private sector jobs, and they’ve created roughly 70% of all new jobs in the past decade.”

So it must be true, right? In fact the data on small businesses and job creation is rather scattered and hard to pin down. Data on small businesses is tracked federally by the Small Business Administration and at the state level by various state agencies, principally the Secretary of the State’s office, which records business registrations, and the Department of Labor which analyzes employment by firm size. Susan Byciewicz stepped down as Secretary of the State last week after 12 years in the office.

“75% of the companies in our state are businesses between three and eight employees, so most good companies in Connecticut that are employing people are those small businesses. Most jobs, 90% of the jobs that were created in our state over the past ten years have been created by companies of fewer than 50 people, and in fact most of those companies are those that have fewer than eight employees.”

By contrast, companies of over 500 people employ only about 15% of Connecticut’s workforce. Of course, total employment is different from employment growth and job creation. According to an analysis by the Connecticut Technology Council, between 2006 and 2008, firms of under 100 people created more than 100,000 jobs in the state, while larger companies created only a few thousand. The Council’s Matthew Nemerson says it’s important to make the jump from the data to the real people involved.

“With only one or two percent of the companies supplying probably 40% of the growth, you want to be sure that you know who those five, 50, 200 companies are and you want to be working them all the time.”

In Groton, Douglas Dickey has seen both sides of the coin. He worked for several years for Pfizer, a Fortune 500 company that has 4,000 employees in Connecticut alone. He was a chemist in the drug maker’s manufacturing plant. Then he was laid off, and took the plunge to begin his own business, Constitution Biofuels, turning waste vegetable oils from restaurants into heating oil and diesel fuel.

“It was tough at Pfizer, because you have no control whatever over your destiny. And the way the economy’s going, everyone’s more expendable for larger companies, so it seems like if anything’s going to get done, or anything’s going to get innovated, it’s going to be someone who’s starting their own business and taking the risk like that, because larger companies seem to be more risk averse.”

That jives with a study published last summer by the National Bureau of Economic Research which says that in fact it’s not how big or small a company is, but how young, that matters when it comes to job creation. Gary LeBeau is a state senator and chair of the legislature’s commerce committee.

“There are certain small businesses which are the engines of economic growth, and those are new businesses. Businesses that are just starting capital formation and just getting into hiring. Those businesses are the businesses that really show economic growth in terms of hiring going forward. And particularly high technology, green jobs, innovative businesses, because that is where we can change the future of Connecticut.”

State policy makers shaping economic strategies in this coming session must decide what story is really told by the numbers on small businesses and job creation.

For WNPR, I'm Harriet Jones.