Office of Advocacy

U.S. Small Business Administration

Washington, D.C.: 2000

The Third Millennium:

Small Business and

Entrepreneurship in the

21st Century
The full text of this report is available on the Office of Advocacy’s

Internet site at http://www.sba.gov/advo/. Reprints in paper or microfiche are available for purchase from the National Technical Information

Service, 5285 Port Royal Road, Springfield, VA 22161.

Federal Recycling Program

Printed on recycled paper.
Preface

In preparation for the 1995 White House Conference on Small Business,

the Office of Advocacy convened a series of focus groups and commissioned

a set of research papers looking ahead at the trends and issues expected to

affect small business at the turn of the new century. The results were published in the 1995 edition of The Third Millennium: Small Business and

Entrepreneurship in the 21st Century.

With five more years of history to add to our data, we thought it was

time to take another look and see whether our expectations were right. So

the Office of Advocacy convened several more focus groups, of former 1995

White House Conference delegates, small business leaders, and futurists, and

gathered the available new data.

I’m pleased to report that many of our predictions have been right on target. Some events — for example, technological developments and related

phenomena, such as the connectivity fostered by the Internet — are occurring even faster than expected. Other trends continue at a slightly slower

pace than earlier predictions suggested.

So as the Third Millennium begins, this report presents a picture of where

small business stands and where it is likely to be over the next several years.

If you'd like to know more, you can visit the Office of Advocacy's Web site

at www.sba.gov/advo/stats — or call us at (202) 205-6533. 

It is my hope that this information will help you and other small business

owners, advocates, and policy makers prepare for the many challenges just

ahead. I welcome your comments and questions-and, as always, your efforts

on behalf of small business.

Jere W. Glover

Chief Counsel for Advocacy

U.S. Small Business Administration

Contents

Preface iii

Introduction 1

The Findings: Four Themes 2

Conclusion 19

The Economic and Demographic Trends 21

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The Economic and Demographic Trends

The Third Millennium 21

On the following pages is a version of a presentation that has proven to be very popular

with small business organizations around the

country since its first publication in 1995

during the White House Conference on Small

Business.

Entitled Small Business in the Year 2005

and Beyond: The Economic and Demographic

Trends, it represents a distillation by the Small

Business Administration’s Office of Advocacy

of statistical findings and research from a wide

variety of sources. The presentation gives a

wide-ranging look at the most important

trends that will affect small business over the

coming decade.
22 U.S. Small Business Administration, Office of Advocacy

• The Internal Revenue Service estimates that there were

24.8 million non-farm business tax returns filed in 1998.

• About 5.5 million of these business returns represented

employer businesses. More than 99 percent of them were

small companies with fewer than 500 employees.

• The number of tax returns has increased steadily over the

last decade, with a decline in only one year. This trend is

expected to continue.

Business Tax Returns, 1982–1998 

0

10

20

30

1982 1984 1986 1988 1990 1992 1994 1996 1998 Est.

Millions

Employer Firms

Source: Office of Advocacy, U.S. Small Business Administration, from data provided by the 

Internal Revenue Service and Bureau of Census, Statistics of U.S. Business.

25 million business tax returns estimated for 1998
The Third Millennium 23

• The number of employer businesses has increased by about

50 percent over the last two decades.

• The number of employer firms is expected to be nearly 6.6

million by 2000.

Employer Firms, 1980–2005

4,072

4,555

5,074 5,369

5,975

6,580

0

2,000

4,000

6,000

8,000

1980 1985 1990 1995 2000* 2005*

Thousands

Source: Office of Advocacy, U.S. Small Business Administration from data provided by the Department of 

Labor, Employment and Training Administration, and Bureau of the Census, Statistics of U.S. Business.

Note: Data estimated from 1982–1988 Department of Labor data and 1989–1996 Bureau of the Census

data. The rate of increase in new employer firms from 1982 to 1998 was used to both forecast subsequent

years and impute data for prior years.

* = Estimates
24 U.S. Small Business Administration, Office of Advocacy

0

2000

4000

6000

8000

10000

12000

14000

1966 1976 1986 1996 2006*

Thousands

Non-agriculture

Agriculture

Note: Self-employment is defined here as an individual’s primary occupation.

Source: Office of Advocacy, U.S. Small Business Administration, from data provided by the Bureau of Labo

Statistics.

Self-Employment, 1966–2006

* = Estimate

2,136

5,991

8,127

7,428

1,646

5,783

7,881

8,971

10,096

1,447

1,518

1,519

9,327

10,490

11,615

• Employment declines in farming and manufacturing

industries are expected to continue to free more individuals

to pursue entrepreneurial activity.

• Entrepreneurship is also expected to grow because of continued corporate “right sizing” and mergers among large

organizations.
The Third Millennium 25

• The climate for new employer business formation has continued to improve. 

• Almost 800,000 new employer firms are expected to be

added by 2005. (This excludes secondary locations of preexisting businesses.)

422

535 541

598

695

790

200

400

600

800

1,000

1980 1985 1990 1995 2000* 2005*

Thousands

New Employer Firms, 1980–2005

* = Estimates

Note: Data estimated from 1982–1988 Department of Labor data and 1989–1996 Bureau of the Census

data. The rate of increase in new employer firms from 1982 to 1998 was used to both forecast subsequent

years and impute data for prior years.

Source: Office of Advocacy, U.S. Small Business Administration, from data provided by the Department of Labor,

Employment and Training Administration, and Bureau of the Census, Statistics of U.S. Business.
26 U.S. Small Business Administration, Office of Advocacy

• The number of “primary self-employed” individuals — that

is, those whose main source of income was through selfemployment — is expected to be 11.6 million in 2005.

About 4.7 million of these individuals will be women.

• Women’s share of self-employment is expected to be about

equal to that of men by 2005.

• Men are still more likely to be self-employed than women.

Share of Self-Employment by Gender, 1963–2005

Source: Office of Advocacy, U.S. Small Business Administration, from data provided by the Bureau of Labor Statistics.

0

25

50

75

100

1963 1968 1973 1978 1983 1988 1993 1998 2005*

Percent

Male Female

Note: Self-employment is defined here as an individual’s primary occupation.

* = Estimate
The Third Millennium 27

• Business bankruptcies dropped from around 80,000 in

1986 to about 44,000 in 1998.

• The figures for 1998 marked a low in the number of business bankruptcies over the last dozen years.

• Bankruptcies increased only slightly during the last recession (1990–1992)

Business Bankruptcies, 1986–1998

79.9

62.8 63.9

69.8

50.8 53.2

44.2

0

10

20

30

40

50

60

70

80

90

1986 1988 1990 1992 1994 1996 1998

Thousands

Source: Office of Advocacy, U.S. Small Business Administration from data provided 

by the Administrative Office of the U.S. Courts.
28 U.S. Small Business Administration, Office of Advocacy

• Almost one-third of firms belonging to small business

associations had job openings in 1998 that they were

unable to fill.

• One result of the continuing low unemployment rate is

the highest percentage of businesses unable to fill current

openings over the last decade.

• Only 15 percent of businesses had openings that they

could not fill in 1991; this figure had nearly doubled by

1997.

Labor Shortage, 1988–1998

20

23

19

15 16 16

22

25 25

29 29

0

5

10

15

20

25

30

35

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Percent

Source: Office of Advocacy, U.S. Small Business Administration contract to Joel Popkin and Company using 

National Federation of Independent Business data.

Percent of firms with job openings
The Third Millennium 29

• The unemployment rate continues to fall. The 1998 rate

of 4.5 percent is a full percentage point lower than the 5.5

percent posted a decade earlier.

• The 1998 unemployment rate is the lowest rate posted

since 1969, when it was 3.5 percent.

• Economic conditions continue to portend a healthy

economy, as the unemployment rate stays historically low.

Unemployment Rate, 1988–2005

5.5 5.3 5.6

6.8

7.5

6.9

6.1

5.6 5.4

4.9 4.5

5.1

5.7

0

1

2

3

4

5

6

7

8

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 2000* 2005*

Percent

Source: Office of Advocacy, U.S. Small Business Administration from data provided by the Bureau 

of Labor Statistics with projections from the Congressional Budget Office.

4.2

1998

* = Estimates
30 U.S. Small Business Administration, Office of Advocacy

• Similar to farming, as manufacturing productivity

increased, employment in the manufacturing sector

declined. Services picked up the employment slack with

such thriving industries as health care and computers.

• The gap between employment in the manufacturing and

service sectors is growing, and is expected to continue to

increase over the next decade.

• By 2010, the relative shares of employment in the manufacturing and service sectors are expected to be just

about the opposite of their 1950 levels.

Source: Office of Advocacy, U.S. Small Business Administration, from data provided by the Bureau of Labor 

Statistics and projections from Bureau of Economic Analysis. 

0

10

20

30

40

1950 1960 1970 1980 1990 2000* 2010*

Manufacturing Services

Employment in Manufacturing and

Services Sectors, 1950–2010

Percent

* = Estimates
The Third Millennium 31

• The share of U.S. employment represented by the Fortune

500 Industrials continues to decline.

• In 1996, the Fortune 500 Industrials share of U.S. employment was nearly half of what it was 30 years ago.

0

2

4

6

8

10

12

14

16

18

20

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1995

Fortune 500 Share of Employment, 1969–1995

Source: Adapted by the Office of Advocacy, U.S. Small Business Administration, from data provided by the Fortune

500, and the Bureau of Labor Statistics, Department of Labor.

Note: In 1994, the Fortune 500 Industrials became the Fortune 500 Industrial and Service Corporations. 1995 500

Industrials was estimated from the Fortune 1000.

Percent

Fortune 500 Industrials

Fortune 500 Industrial and Service 

Corporations
32 U.S. Small Business Administration, Office of Advocacy

Share of Net New Jobs by Employment

Size of Firm, 1990–1995

Source: Office of Advocacy, U.S. Small Business Administration, from data provided by the 

U.S. Department of Commerce, Bureau of the Census.

Less than

20 employees

500 or more

employees

20 to 499

employees

23.5%

27.5%

49.0%

• Small businesses have historically been the generators of the

bulk of net new jobs in the U.S. economy. This is expected to

continue into the future as new firms start small and grow.
The Third Millennium 33

• While the population of the United States will continue to

increase in the future, it will increase at a much lower rate.

• The rate of population growth declined, decade by decade,

from 1950 onward, except during the 1990–1995 period.

U.S. Population Growth, 1950–2010

Source: Office of Advocacy, U.S. Small Business Administration, from data provided by the Bureau of Economic

Analysis. 

0.0

0.5

1.0

1.5

2.0

1950-60 1960-70 1970-80 1980-90 1990-95 1995-00 2000-05* 2005-10*

Percent

* = Estimates
34 U.S. Small Business Administration, Office of Advocacy

• Rather than decline steadily (as population growth rates

did) the labor force growth rate increased from 1950 to

1980, before beginning to decline in the 1980s.

• The driving forces of the continued increase were the

“baby boom” children entering the labor force and increased

participation in the labor force by women.

• The growth rate of the U.S. labor force is expected to

remain steady through 2005 — at about 1.3 percent — driven by the growth of the minority work force and the

declining birth rate experienced during the 1970s.

U.S. Labor Force Growth, 1950–2005

Source: Office of Advocacy, U.S. Small Business Administration from data provided by the

Bureau of Labor Statistics.

0

1

2

3

1950-60 1960-70 1970-80 1980-90 1990-2005

Percent Change

2.5%

1.7%

1.2% 1.3% 1.3%
The Third Millennium 35

• The average age of a worker will increase from 35.9 years

in 1988 to 40.7 years in 2008.

• The number of workers aged 45–64 is expected to

increase by over 30 million, or about two-thirds, from

1988 to 2008.

Labor Force by Age Group, 1988 and 2008

Source: Office of Advocacy, U.S. Small Business Administration, from data provided by the Bureau of Labor

Statistics.

33.0

77.4

45.6

78.3 76.2

0

20

40

60

80

100

< 25 25–44 45-64 65+

Age Group

Millions

38.1

28.6

36.0

1998 2008*

* = Estimate
36 U.S. Small Business Administration, Office of Advocacy

• The 65-and-over age group has continued to increase its

share of the U.S population. This increase is expected in

continue well into the next century.

• The 45–64 age group (not specifically shown in this

chart) increased its share dramatically between 1980 and

1990.

• The share of the youngest group — those under 18 years

of age — has fallen over the last several decades and is

expected to remain relatively constant over the next two

decades.

Population by Age, 1970–2010

Source: Office of Advocacy, U.S. Small Business Administration, from data provided by

the Bureau of Economic Analysis.

0

50

100

150

200

250

300

350

1970 1980 1990 2000 est. 2010 est.

Millions

Under age 18 Age 18–64 Age 65+
The Third Millennium 37

• Women and minorities will be driving the net growth in

the labor force over this time period.

• Women will represent about half of the entrants into the

labor force during 1998–2008, and only 44 percent of

those exiting.

• Hispanics will represent 16 percent of labor force entrants

and just 6 percent of those exiting. 

• White men will represent about a third of the entrants

while representing nearly 40 percent of those exiting.

Labor Force Change, 1998–2008

White men

30%

Black

16%

Asian

9%

Hispanic

16%

White 

women

29%

Note: Races do not include Hispanics. By gender, women represent an estimated 50.1 

percent of the labor force entrants and 45.1 percent of the leavers during this time period.

Source: Office of Advocacy, U.S. Small Business Administration, from data provided by the 

Bureau of Labor Statistics.

White men

Black 38%

19%

Asian

7%

Hispanic

6%

White 

women

30%

Entrants Leavers
38 U.S. Small Business Administration, Office of Advocacy

• Given current budget forecasts, the U.S. federal government surplus is expected to continue to grow into the beginning of the next century. (The calculations include the Social

Security surplus.)

• While the federal government’s budget surplus is expected

to continue to grow into the 21st century, it will take awhile

to recover from the deficit levels of the early 1990s.

Government Deficit/Surplus, 1990–2004

-0.27

-0.35

-0.26

-0.20 -0.16

-0.11

0.07 0.08 0.12 0.11 0.14 0.14

-0.22

0.17

-0.02

-0.4

-0.3

-0.2

-0.1

0.0

0.1

0.2

1990 1994 1998 2002

Trillions

Source: Office of Advocacy, U.S. Small Business Administration, from data provided by the 

Office of Management and Budget.
The Third Millennium 39

• Employment in the information technology sector is expected to

increase by about a third from 1996 to 2006.

• Most of these increases are expected to be in occupations for which a

high degree of skill or training is necessary.

• Based upon historical data collected by the Bureau of the Census,

approximately two-thirds of new jobs in this sector are expected to

come from companies with fewer than 500 employees

0

1000

2000

3000

4000

5000

6000

Thousands

Note: Includes information technology users and producers. Information technology producers are expected to 

increase from 1.45 million in 1996 to 2.24 million in 2006.

Source: Office of Advocacy, U.S. Small Business Administration, from data provided by the Department of 

Information Technology Employment, by

Level of Training Required, 1996–2006

2,508 3,945

1996 2006*

917

742

897

998

High training

Moderate training

4,322 Low training

5,685

Commerce (using Bureau of Labor Statistics data).

* = Estimates