Small Business and Employment: A Cross-Sectional Analysis

Politicians within the United States regularly tout the advantages of promoting small business as a means to cure unemployment in the nation’s economy. This paper presents an unbiased cross-sectional study, across all fifty states, of the effects of small business on employment. To affirm for the robustness of our model, we control for industry, geographical region, the proportion of small firms in the state (as a percentage of total firms), gross domestic product, education, and government employment. By eliminating the effects of these other determinants of employment, we were able to conclude that for most industries, the proportion of small businesses in a state has no effect on the unemployment rate