Tag Archives: economic recovery

Small Businesses and the Economy

Small business is an important focus of economic recovery because they are adaptable and stable forms of tax revenue and they create jobs.

Since the recession, the U.S. economy has not bounced back as quickly as it has in the past. One of the main reasons for this delayed recovery is because of the decrease in small businesses. Although small businesses do not generate as much money as their larger counter parts, they are an invaluable piece to the country’s economy. In the United States alone, small businesses make up between 60-80% of all jobs and employ almost half of the private sector work force. Therefore, when considering ways to further stimulate our economy, focusing on the establishment and growth of small businesses is an ideal place to start.

On a local scale, small businesses strengthen the economy by bringing growth and innovation to the community. Small businesses attract talent from individuals who are inventing new products or creating new solutions. In addition, small businesses usually remain stable through changing economic times as they are more adaptable to change and customers are more likely to stay loyal. Even if the economy is struggling, majority of consumers will not stop going to their favorite local coffee shop in the morning, regardless if the latte price increases twenty-five cents. As a result, small businesses are a stable form of tax revenue for communities and where there is more tax dollars there is a bigger budget. This budget is reinvested in the community through schools, public transportation, and the police force.

In order to maintain the valuable effects small businesses provide to the economy, the right climate of entrepreneurship and support must be created and fostered. Fortunately, many programs and support organizations exist that valuable the role of the small businesses, even if they are not small businesses themselves. For example, Goldman Sachs created a the 10,000 Small Business Initiative which focuses on providing small businesses with “greater access to business education, financial capital, and business support services”. The company’s goal is to reach 10,000 small businesses across the country through this integrated approach to create jobs and economic opportunity.

Although the labor department recently announced that unemployment rates fell, the data does not always portray the whole story as there are millions of people still searching for jobs. In order to see our economy continue to flourish, new jobs must continue to develop, which is exactly where small businesses come into play. The value of small businesses and consequently more employment opportunities  cannot be understated, as it is a major source of economic stability and economic growth that our country still desperately needs.

Why The Middle Class Is So Important

Most economists do not think about the middle class when asked how do you make the economy grow? Although economists differ in their specific answer to this question, Heather Boushey and Adam Hersh point to five central ideas included in each answer: the level of human capital, cost of and access to financial capital, strong and stable demand, the quality of political and economic institutions, and investment in public goods, education, health and infrastructure. The middle class plays a central role in each of these categories. First, a strong middle class promotes the development of human capital through a well-educated population. Next, a strong middle class creates a stable source for demand and supports political and economic institutions. Lastly, a strong middle class creates and fosters the next generation of entrepreneurs. The Kauffman Foundation conducted a study on the demographics of entrepreneurs and found that only 1% come from extremely poor or extremely rich backgrounds, which leaves 99% coming from the middle class.

President Obama reiterated this idea in his State of the Union speech when he said that the middle class is the foundation of our economy. However, the issue lives in the declining number of households that are still considered middle class. Since 1967 the percent of households in the middle-income classification, defined as a cumulative household income between $35,000-$100,000, decreased from 53% to 43%. The decline of the middle class is not a homogenous trend, it is further divided when considering age and demographic. Younger households are facing the largest decline and therefore are more likely to fall into the lower income category, whereas households with people in their late 60s are more likely to remain in the middle class or move up to the upper class. Many of these changes are centered on income levels. For younger households, incomes are falling and for older households their wages continue to rise after a certain number of years in their career. In addition, geography of the household matters. The Northeast was hit the hardest in terms of job security during the Great Recession, where the economy relied on industry. These industrial economies turned into suburbanization and increased wealth for some and difficult times for others, therefore further increasing the inequality.

In order to preserve the middle class and further stimulate the economy, President Obama is focusing on offering raft proposals to help pay for a college education, taking parental leave, childcare, and buying a home in order to make working class families feel more secure. After the Great Recession the majority of lost jobs came from the middle class and as jobs started to come back most of them were from a lower income sector. If these programs work the direction of the economy will change, as more and more jobs will be created. Therefore, when considering how to stimulate or grow the economy taking into consideration the state of the middle class is necessary and vital for a full recovery of the economy.