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April, 2000, Vol. 123, No.4
The characteristics of small-business employees
One characterization of the U.S. economy is that it begins with the formation of small businesses, some of which then grow into large businesses, with both kinds ultimately perishing in a process referred to as "creative destruction" that necessitates a reallocation of resources.1 Be that as it may, certainly small firms are a dynamic force in the economy, bringing new ideas, processes, and vigor to the marketplace. They fill niche markets and locations not served by large businesses. (Consider, for example, the rural "general store.") Large firms, on the other hand, generally provide stability to the economy.
The differences in the small- and large-business workforces are, at least in part, a result of the inherent differences in small and large firms. Small firms are often younger (indeed, they are sometimes recent startups), more likely to be in rural areas, and more apt to be in industries with lower economies of scale, such as services. 2 Small firms can represent a life stage before economies of scale are reached (or hoped-for future growth is attained), or they can be a stable anchor in the marketplace. These age, location, and industry effects constitute the basic differences between small and large firms and can lead to different workforce needs and different resources to attract workers of various education levels and occupations.
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1 Joseph Schumpeter’s Capitalism, Socialism and Democracy (1962) coined the phrase "creative destruction" to characterize the evolution of the economy through technological change leading to the opening, growing, shrinking, and closing of firms. See also The New American Evolution (U.S. Small Business Administration, Office of Advocacy, June 1998); The State of Small Business: A Report of the President, 1998 (U.S. Small Business Administration, Office of Advocacy, forthcoming; on the Internet at http://www.sba.gov/advo/stats/); W. A. Brock and D. S. Evans, The Economics of Small Firms (New York: Holmes and Meier, 1986); and G. S. Becker, "Make the World Safe for ‘Creative Destruction,’" Business Week, Feb. 23, 1998.
2 See Small Business Growth by Major Industry, 1988–1995 and Rural and Urban Areas by Firm Size, 1990–1995 (U.S. Small Business Administration, Office of Advocacy, 1998); on the Internet at http://www.sba.gov/advo/stats/.
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