The JOBS Act helps Small Business Start-Ups

Where do new jobs come from? During August 2012, the private sector created 201,000 brand new jobs according to the ADP National Employment Report. Firms with 500 or more workers created only 8.0% of the total; firms with 50 to 499 workers accounted for 42.8%; and firms with 1 to 49 workers accounted for 49.2% of new jobs.

Taking a longer-range perspective, between 1992 and the first quarter 2010, small firms (i.e. firms with 500 or fewer workers) accounted for 74% of the gross increase in jobs and 62% of the net increase.

Researchers have discovered the largest share of the net increase in new jobs is attributable to startup enterprises (i.e. firms that are less than one year of age).

In contrast, mature firms and larger firms accounted for the majority of job terminations. During economic recessions, job creation becomes even more concentrated in startup companies because larger companies lay off workers at an accelerated rate.

No matter how one slices or dices the evidence, when you think of new job creation, you must think small. This fact has become increasingly clear as the economy struggles to recover from the deep recession of 2007 to 2009.

Recently, the Obama Administration signed into law the JOBS Act (Jumpstart Our Business Startup), which makes capital more accessible to new, high-growth job creating companies. It does this by allowing small businesses to engage in crowd funding, mini public offerings, and IPO on-ramps.

• New crowd funding laws allow small businesses to raise capital via the Internet (up to $1 million annually from a variety of small-dollar accredited investors). Accredited investors are individuals with high net worth.

• The mini public offering provision increased the threshold that the SEC uses to exempt firms from its requirements from $5 million-$50 million.

• The IPO on-ramp provision allows high-growth companies more time (two years after going public) to comply with Sarbanes-Oxley auditing requirements.

Small business job creation is indispensable to reducing the large unemployment rates among African-Americans (2.6 million unemployed workers and 14.1% unemployment rate), Latinos (2.5 million unemployed workers and 10.2% unemployment rate) and teenagers (24.6% unemployment rate).

In August 2012, the overall unemployment rate was 8.1%; however, there were more than 8 million workers under-employed (i.e. employed part-time but preferred full-time work) and another .8 Million who were discouraged and had dropped out of the labor market because they were unable to find employment.

The policy implications of these facts suggest the economy would be best served to focus on employer-based small innovative startups. We applaud the Obama Administration for doing this through the JOBS Act.