www.sba.gov/advocacy

Office of Advocacy

Annual Report of the

Office of Economic Research

FY 2012

January 2013
Created by Congress in 1976, the Office of Advocacy of the U.S. Small Business 

Administration (SBA) is an independent voice for small business within the federal 

government. Appointed by the President and confirmed by the U.S. Senate, the Chief 

Counsel for Advocacy directs the office. The Chief Counsel advances the views, concerns, and interests of small business before Congress, the White House, federal agencies, federal courts, and state policy makers. Economic research, policy analyses, and 

small business outreach help identify issues of concern. Regional Advocates and an 

office in Washington, DC, support the Chief Counsel’s efforts.

For more information on the Office of Advocacy, visit http://www.sba.gov/advocacy, 

or call (202) 205-6533. Receive email notices of new Office of Advocacy information 

by signing up on Advocacy’s Listservs at http://www.sba.gov/updates.
i Annual Report of the Office of Economic Research, FY 2012 

Foreword

We are pleased to present this FY 2012 annual report for the Office of Advocacy’s Office of Economic Research (OER). Advocacy places a high value on 

sound economic research, which contributes to better policy for small business, and on providing our small business stakeholders with timely and actionable information about the current economic climate. 

Throughout more than 35 years of existence, the Office of Advocacy has 

conducted economic research as part of its core mission. In 1976, Public Law 

94-305 assigned to Advocacy the task of examining “the role of small business in the American economy and the contribution which small business can 

make in improving competition.”

In fiscal year 2012, Advocacy produced more than 25 contract and internal 

research reports about topics ranging from immigrant and veteran small business owners to small business lending, federal contracting, and innovation.

In addition to these reports, Advocacy economists participated in roundtables and conferences about various small business topics. These outreach efforts are important for small business stakeholders around the country. 

We appreciate our stakeholders’ contributions in support of the best possible research on small business and we look forward to hearing from you in 

the year ahead. For more information about the Office of Advocacy, visit our 

website at www.sba.gov/advocacy.

Winslow Sargeant, Ph.D. Joseph M. Johnson, Ph.D.

Chief Counsel for Advocacy Director, Office of Economic Research
iii Annual Report of the Office of Economic Research, FY 2012

Contents

Foreword i

Introduction 1

Advocacy Research Reports, FY 2012 3

 Advocacy Research 3

 Contract Research 6

Data Access 9

 Small Business Data Resources Tool 9

 Downloadable Data 9

 Statistics of U.S. Businesses 10

 Business Dynamics Statistics 11

 Business Employment Dynamics 11

 Nonemployer Statistics 12

Appendix A: Research Functions 13

Appendix B: Frequently Asked Questions 15

Appendix C: Small Business Data Resources 19
1 Annual Report of the Office of Economic Research, FY 2012 

Introduction

In fiscal year 2012, the Office of Advocacy continued to issue research reports 

on a variety of timely topics, from capital formation to immigrant entrepreneurship. Small business was a focus of national debates about economic growth, 

job creation, and the regulatory environment. The Office of Economic Research 

responded to the pressing need for new and timely information on small firms by 

making more information readily available in updated formats and by commissioning research on key topics. 

One of the Office of Advocacy’s earliest mandates was “to examine the role 

of small business in the American economy and the contribution which small 

business can make in improving competition, encouraging economic and social 

mobility...and providing an avenue through which new and untested products and 

services can be brought to the marketplace.”1

In keeping with its research mission and in an ongoing effort to make its data 

products reader friendly and electronically accessible, the Office of Advocacy in 

FY 2012 expanded and redesigned its Frequently Asked Questions About Small 

Business (FAQ) (see Appendix B). The new edition includes twice as much data 

as previous versions, as well as charts and tables showing key small business statistics and trends. Topics covered include general data about small businesses and 

their employment and output, the demographics of ownership (businesses owned 

by women, minorities, veterans, and youth), home-based business trends, business 

survival rates, innovation, federal procurement, tax rates, and legal forms of organization. Advocacy continued quarterly updates of its two recurring publications, 

the Small Business Quarterly Bulletin and the Quarterly Lending Bulletin. All of 

the new publications continue to be well received and widely read by Advocacy 

stakeholders. 

The Office of Advocacy continues to partner with the U.S. Census Bureau to 

collect and report important data on small business. Advocacy economists process 

and analyze the data to produce easy-to-understand statistical tables and reports 

downloadable from Advocacy’s website. 

In FY 2012, the Office of Advocacy also provided information in easily accessible matrix form about its work products and resource partners. Small Business 

Data Resources is a listing of online databases by federal agency or private sector source and topic (see Appendix C). The listed databases are hotlinked to their 

websites and keyed to the small-business-related topics on which they provide 

information. 

Matrices of research by issue area display Advocacy’s annual research products from FY 2008 to FY 2012 and the issue areas they address, broadly framed in 

three categories: 

1 Public Law 94-305, 1976. See Appendix A.
2 Annual Report of the Office of Economic Research, FY 2012 

• Small business contributions—The impact small businesses make;

• Small business challenges—The hurdles small businesses face; and

• Small business environment—What can be done to facilitate small business 

success.2

 In FY 2012, Advocacy’s Office of Economic Research advanced the mission of providing small business research that is timely and relevant for use by the 

many stakeholders interested in small business contributions to the U.S. economy.

2 See http://www.sba.gov/advocacy/7540/161281
3 Annual Report of the Office of Economic Research, FY 2012

Advocacy Research 

Reports, FY 2012

In FY 2012, Advocacy’s Office of Economic Research produced reports on topics 

ranging from federal tax compliance burdens to entrepreneurship among veterans 

and women. This section lists Advocacy’s FY 2012 research reports by release 

date, beginning with the latest, followed by Advocacy contract research, also in reverse chronological order. Visit the Office of Advocacy website for research reports 

available online: http://www.sba.gov/advocacy/7540/. 

Advocacy Research

Frequently Asked Questions about Small Business 

http://www.sba.gov/advocacy/7495/29581

This valuable resource gathers dozens of the latest statistics about America’s small 

business in one place. The FAQ is updated annually, and includes data on the total number of small businesses, their share of employment and net new jobs, plus 

starts, closures, and overall contributions to the U.S. economy. (Released September 2012.)

Small Business Facts

http://www.sba.gov/advocacy/7540/126001

Various authors.

Periodically, Advocacy presents these one-pagers to focus on one specific small 

business issue. These Facts enable small business champions and others to better 

understand the plight of small businesses. (Released May-September 2012.)

• Gender differences in startup financing 

• Home values and entrepreneurship 

• Startup rates 

• Where are the jobs created? New or existing businesses? 

• What is the level of availability and coverage of health insurance in small

 firms? 

• Do economic or industry factors affect business survival? 

• What is the difference between self-employer businesses and sole 

 proprietors? 

• Credit card financing and small business 

Small Business Quarterly Bulletin, Second Quarter 2012

http://www.sba.gov/sites/default/files/SBQB_2012q2.pdf 

Advocacy’s Small Business Quarterly Bulletin for the second quarter of 2012 

shows economic variables related to small business. (Released September 2012.)
4 Annual Report of the Office of Economic Research, FY 2012 

Small Business Lending in the United States, 2010-2011

http://www.sba.gov/sites/default/files/files/sbl_11study.pdf 

Victoria Williams

Research Summary No. 398

This report is an update to Advocacy’s annual publication that provides information on the lending activities of depository institutions in the United States. The 

U.S. economy continued to recover and improved moderately during the second 

half of 2011 as some economic indicators turned upward. Financial market conditions were to some extent supportive of economic growth, but the credit supply for 

smaller firms remained tighter than for larger firms relative to historic norms. (Released July 2012.)

Quarterly Lending Bulletin, First Quarter 2012

http://www.sba.gov/sites/default/files/SBL_2012Q1.pdf 

Small business borrowing remained slow in the first quarter of 2012. The number 

of C&I loans increased, while commercial real estate loans remained unchanged. 

(Released July 2012.)

Small Business Quarterly Bulletin, First Quarter 2012 

http://www.sba.gov/sites/default/files/SBQB_2012q1.pdf 

Advocacy’s Small Business Quarterly Bulletin for the first quarter of 2012 shows 

economic variables related to small business. (Released June 2012.)

Small Business Quarterly Bulletin, Fourth Quarter 2011

http://www.sba.gov/sites/default/files/SBQB_2011q4_0.pdf 

Advocacy’s Small Business Quarterly Bulletin for the fourth quarter of 2011 shows 

economic variables related to small business. (Released April 2012.)

The Small Business Economy, 2011

http://www.sba.gov/advocacy/849/6282

Small businesses were challenged as the economy recovered from the recent recession. As in previous editions of The Small Business Economy, the key set of 

reference tables (Section A) documents various aspects of small business participation in the American economy. Many economic indicators began to show positive 

improvement in the months following the end of the most recent recession. The 

Office of Advocacy tracked small business financing trends in The Small Business 

Economy. This year the key financial data (Section B) tracked important trends 

such as movements in interest rates, credit market borrowing by businesses, their 

sources and uses of funds, finance company borrowing, initial public offerings of 

common stock, and venture capital. (Released March 2012.)
5 Annual Report of the Office of Economic Research, FY 2012 

Veteran-owned Businesses and their Owners—Data from the Census Bureau’s 

Survey of Business Owners

http://www.sba.gov/advocacy/7540/132031 

Joseph Sobota with contributions from Jules Lichtenstein

Research Summary No. 393

Businesses owned by veterans and by service-disabled veterans have been a research priority for the U. S. Small Business Administration’s Office of Advocacy 

since the enactment of the Veterans Entrepreneurship and Small Business Development Act of 1999, Public Law 106-50. This report continues Advocacy’s ongoing veteran entrepreneurship research program and features data on veteran-owned 

businesses and their owners. The report is based on 2007 Survey of Business 

Owners data released in 2011. (Released March 2012.)

Quarterly Lending Bulletin, Fourth Quarter 2011

http://www.sba.gov/sites/default/files/SBL_2011Q4.pdf 

Small business borrowing remained subdued in the fourth quarter of 2011. Advocacy’s Quarterly Lending Bulletin shows that total small business borrowing declined at a much slower pace than in the previous quarter. The value of small business commercial and industrial (C&I) loans increased for the first time in seven 

quarters. (Released March 2012.)

Report on the Regulatory Flexibility Act, FY 2011

http://www.sba.gov/sites/default/files/11regflx_0.pdf 

Research Summary No. 391

The Regulatory Flexibility Act (5 U.S.C. 601-612) requires federal agencies to 

consider the effects of their regulatory actions on small businesses and other small 

entities and to minimize any undue disproportionate burden. The Chief Counsel 

for Advocacy of the U.S. Small Business Administration is charged with monitoring federal agencies’ compliance with the act and with submitting an annual report 

to Congress. The Office of Economic Research contributes data on small business 

cost savings as a result of this work. In FY 2011, Advocacy’s RFA efforts helped 

save nearly $11.7 billion in first-year regulatory costs for small businesses (Released February 2012.)

2011 Small Business Profiles for the States and Territories

http://www.sba.gov/advocacy/848/41391

The economic condition of small businesses in the United States is captured in the 

latest edition of the Small Business Profiles for the States and Territories. This annual publication from the Office of Advocacy provides information on the demographics of business ownership, employment, industry composition, and small business income, for each of the 50 states and the District of Columbia. The publication 

provides available limited data on the U.S. territories. (Released January 2012.)
6 Annual Report of the Office of Economic Research, FY 2012 

Quarterly Lending Bulletin, Third Quarter 2011

http://www.sba.gov/advocacy/10871/29971 

Financial conditions in the third quarter continued to be supportive of economic 

growth. Nonetheless, demand for commercial and industrial (C&I) loans remained 

weak. Overall, the results indicate that small business lending appears to be stable 

compared with previous quarters and other economic indicators. (Released December 2011.)

Annual Report of the Office of Economic Research, FY 2011

http://www.sba.gov/advocacy/7540/37331 

In FY 2011, the Office of Advocacy’s Office of Economic Research (OER) continued to offer timely research on a variety of small business topics, with a particular 

focus on small business job creation and financing. In fiscal year 2011, the office 

published 25 separate contract and internal research reports about topics including small business innovation, demographics of ownership, and capital formation. 

The office produced several new well-received series, including a Quarterly Lending Bulletin and Frequently Asked Questions about Small Business Finance. OER 

continued to provide easy-to-understand tables and reports downloadable from the 

website. Beyond research products, the office sponsored two research conferences 

in FY 2011, the first in October 2010, on innovation and financing in high-impact 

businesses, the second in September 2011 on the small business debt and equity 

capital crunch. (Released December 2011.)

Contract Research

Characteristics of Recent Federal Small Business Contracting

http://www.sba.gov/advocacy/7540/149111

Eagle Eye Publishers, Inc., Fairfax, VA 

Research Summary No. 397

This study by Eagle Eye Publishers documents the role and impact of federal procurement programs on small businesses. It provides a backdrop to evaluate the impact of the American Recovery and Reinvestment Act on small business contracting. (Released May 2012.)

Immigrant Entrepreneurs and Small Business Owners and their Access to 

Financial Capital

http://www.sba.gov/advocacy/7540/141841

Robert W. Fairlie, Santa Cruz, CA 

Research Summary No. 396

The importance of immigrant entrepreneurs to the U.S. economy has been very well 

documented in Advocacy studies and elsewhere in the economic literature. They 

contribute greatly to the economy, have high business formation rates, and create 

successful businesses that hire employees and export goods and services. Lacking, 

however, was a thorough look at the financial picture that would complement what 

we know of them. This study, using data from the 2007 U.S. Survey of Business 
7 Annual Report of the Office of Economic Research, FY 2012

Owners, attempts to complete the picture on immigrant entrepreneurship and addresses questions such as the following: What hurdles do they face accessing capital? 

How do they use capital? (Released May 2012.)

State Antitrust Activity’s Impact on Small Business Entry

http://www.sba.gov/advocacy/7540/139551

Robert M. Feinberg, Chevy Chase, MD 

Research Summary No. 395

Potential business owners have a lot to debate before starting a business. For instance, does a state’s level of antitrust enforcement have an impact on small business entry? The study finds that lower levels of a state’s rate of economic growth 

(gross state product) and lower state and local tax burdens increase entry. But the 

research also found weak evidence for relatively high levels of a state’s antitrust 

enforcement increasing small business entry. Small firms view a vigorous anticartel policy as a desirable feature of a state’s law enforcement profile. (Released 

April 2012.)

The Dynamic Relationship between Entrepreneurship, Unemployment, and 

Growth: Evidence from U.S. Industries

http://www.sba.gov/advocacy/7540/132441 

Jose M. Plehn-Dujowich, Plehn Analytical Economic Solutions, LLC, Willow 

Grove, PA

Research Summary No. 394

Entrepreneurship, economic growth, and unemployment are interrelated: exactly 

how is the subject of this research. Does entrepreneurship lead to economic growth 

or vice versa? Does entrepreneurship lower unemployment, or does unemployment 

lead to entrepreneurship? Without the answers to such questions, policymakers 

may be attempting to treat the symptoms of economic problems rather than devising real solutions for unemployment or slow growth. Moreover, whereas economic 

growth and unemployment are often the focus of academic and media attention, 

the importance of entrepreneurship in this triad is often overlooked. The researcher 

examined ten U.S. industry sectors to determine whether there are “Granger-causal” relationships between entrepreneurship, economic growth, and unemployment. 

(Released March 2012.)

Understanding Small Business Activity at the State Level

http://www.sba.gov/advocacy/7540/47471

John Deskins, Creighton University; Tami Gurley-Calvez, West Virginia University, Eric Thompson, University of Nebraska–Lincoln 

Research Summary No. 392

The study examines the impact of small business activity by industry on overall 

state economic growth. A few studies have focused on the impact of small business 

in general at the state level, but their results make it clear that the differing industry 

mixes among states have skewed the results. (Released February 2012.)
8 Annual Report of the Office of Economic Research, FY 2012 

Small Business GDP: Update 2002-2010

http://www.sba.gov/advocacy/7540/42371

Kathryn Kobe, Economic Consulting Services, LLC

Research Summary No. 390

U.S. gross domestic product (GDP) is the market value of the goods and services 

produced by labor and property located in the United States. This research takes 

each component of private nonfarm GDP and estimates the proportions produced 

by small and large businesses. The study is another installment in the series of 

studies sponsored by the Office of Advocacy on small businesses’ contribution to 

GDP, the most recent of which was published in April 2007. (Released January 

2012.)

Analysis of Small Business Innovation in Green Technologies

http://www.sba.gov/advocacy/7540/28811

Anthony Breitzman and Patrick Thomas, 1790 Analytics

Research Summary No. 389

Small innovative firms are 16 times more productive than large innovative firms in 

terms of patents per employee, and the patents of small firms were cited 79 percent 

more by recent patents than is typical for other patents of the same age and patent 

classification. Patents for “green” products form a higher percentage of the portfolios of small firms with at least one green patent than of large firm portfolios, and 

green patents from small firms are cited 2.5 times as frequently as green patents 

from large firms. (Released October 2011.)
9 Annual Report of the Office of Economic Research, FY 2012 

Data Access

In fiscal year 2012, the Office of Advocacy continued to provide downloadable 

data and links to data on its website. Data cover businesses with and without employees—employer and nonemployer firms.3

 Most firms are nonemployer firms; 

the larger share of receipts and payroll are in employer firms.

Small Business Data Resources Tool

Information proliferates on the Internet, but timely, accurate, extensive, and accessible databases are as good as gold—and equally hard to find. With more than 

30 years of experience mining federal data sources from the Census Bureau to the 

Federal Financial Institutions Examination Council, the Office of Advocacy in FY 

2012 offered a research tool for small business researchers and policymakers, a hyperlinked listing of Small Business Data Resources (Appendix C). 

The tool lists online databases by federal agency or private sector source, hyperlinks the listings to their websites, and keys them to the small-business-related 

topics on which they provide information—all in two one-page summaries. The 

databases listed provide a wealth of information from federal government agencies, 

as well as nongovernment private sector, university, nonprofit, international, and 

other sources. Key topics include demographics, employment, exports, finance, firm 

size data, firms and establishments, health care, income and sales, pension coverage, taxes, and training. Small Business Data Resources is an invaluable tool for 

researchers, policymakers, small business trade associations, and members of the 

media interested in small businesses’ role in the economy.

Although the list includes many of the most widely used data resources, Advocacy notes that inclusion of any specific database on the list does not constitute an 

endorsement by the Office of Advocacy or the Small Business Administration.

Downloadable Data 

The Office of Advocacy posts firm size data from a number of sources on its website. Advocacy defines a small business for research purposes as an independent 

business having fewer than 500 employees. Firm size data for employer firms 

are from the Statistics of U.S. Businesses (SUSB), Business Dynamics Statistics 

(BDS), and Business Employment Dynamics (BED) programs. Data on nonemployers are available from the Nonemployer Statistics (NE) program. The programs 

are annual and are from the U.S. Census Bureau, except the Business Employment 

Dynamics, which is quarterly and from the U.S. Department of Labor, Bureau of 

Labor Statistics (BLS). BDS and BED have an age component. All of the programs 

are essentially based on the universe of private-sector businesses.

3 See http://www.sba.gov/advocacy/849/12162.
10 Annual Report of the Office of Economic Research, FY 2012 

Detailed data on owner and business characteristics are available from the U.S. 

Census Bureau’s Survey of Business Owners (SBO) in years ending in 2 or 7. 

SBO, which is part of the Economic Census, remains unfunded for 2012. 

Statistics of U.S. Businesses

The Office of Advocacy partially funds the U.S. Census Bureau to produce data by 

employer firm size in the Statistics of U.S. Businesses (SUSB) program. SUSB’s 

employer data include the number of firms, number of establishments, employment, and annual payroll for employment firm size categories by location and industry. A firm is defined as an aggregation of all establishments owned by a parent 

company (within a geographic location and/or industry) with some annual payroll. 

The data consist of static and dynamic data. Static data are a “snapshot” of firms 

at a point in time. Dynamic data follow firms from year to year and report job 

creation and destruction and business births and deaths. Available data include the 

following: 

U.S. static data

• U.S. data including multiple tables 

• Detailed industry data, NAICS 2002, NAICS 1997, SIC 

U.S. dynamic data

• U.S. data including multiple tables (births, deaths, growth, and decline) 

• Detailed industry data 

State, metropolitan statistical area (MSA), and county static data

• State and MSA data including multiple tables 

• State major industry data 

• State detailed industry data 

• MSA major industry data 

• Counties 

• Micropolitan statistics, see Census’ Statistics of U.S. Businesses 

State, MSA, and county dynamic data

• State and MSA data including multiple tables (births, deaths, growth, and 

decline) 

• State major industry data, NAICS, SIC 

• State MSA and Non-MSA totals 

• MSA data 

• Counties 

Additional Notes

• Employment size categories are based on the employment size of the firm 

in all industries and locations. For example, if a firm has 20 employees in an 
11 Annual Report of the Office of Economic Research, FY 2012 

industry but 10,000 total employees, the firm will be included in the 500+ 

employee category. 

• Industries are defined according to the Standard Industrial Classification 

(SIC) and the North American Industry Classification System (NAICS). 

• Annual payroll and receipts are in thousands of dollars. 

• Information is available about the process of producing the Statistics of 

U.S. Business. 

Business Dynamics Statistics

Business Dynamics Statistics (BDS) include employer firm data by firm age.4 Visit 

the U.S. Census Bureau’s Business Dynamics Statistics program for more extensive background about the data and see the BDS database list for more detailed 

data on firm size, state, and major industry (includes text files). Available data include the following:

• Firms and establishments by firm age 

• Employment by firm age 

• Establishments and employment by employment size of firm 

• State data 

• Major industry data 

Business Employment Dynamics

BED contains employer firm data with a focus on employment changes from 

establishment entry, growth, decline, and exit. Much of the information dates to 

mid-1992.5

 Note that the data are quarterly and some establishments may close 

and reopen during the year. Fortunately, BLS presents the data in two ways to 

capture the seasonal firms by listing establishment openings—establishments that 

did not exist in the previous quarter—and establishment births—establishments 

that did not exist in the previous year. Classifications are similar for closings and 

deaths. Visit the U.S. Bureau of Labor Statistics’ BED program for background 

and more detailed data. Available data include the following:

• Establishment births, deaths, and associated employment 

• State quarterly establishment births, deaths, and associated employment 

• Quarterly net job change by employment size of firm 

• Employer firms by employment size of firm 

• Employment by employment size of firm 

• Establishment age and survival 

• Establishment size of change 

4 See the background paper, Business Formation and Dynamics by Business Age: Results from the New Business 

Dynamics Statistics, by John Haltiwanger, Ron Jarmin, and Javier Miranda for information on the data program.

5 See the background paper, Measuring Job and Establishment Flows with BLS Longitudinal Microdata, by Timothy Pivetz, Michael Searson, and James Spletzer for information about the data program.
12 Annual Report of the Office of Economic Research, FY 2012 

Nonemployer Statistics

A nonemployer firm is defined as one that has no paid employees, has annual business receipts of $1,000 or more ($1 or more in the construction industries), and 

is subject to federal income taxes. Nonemployers account for about 3 percent of 

business receipts, and about three-quarters of all businesses. See the U.S. Census 

Bureau’s Nonemployer Statistics for more detailed information. The nonemployer 

section also contains capital expenditure data for both employers and nonemployers. See the U.S. Census Bureau’s Annual Capital Expenditures Survey for more 

details. In recent years, the U.S. Census Bureau has begun using noise infusion for 

disclosure avoidance. Available data include the following:

• U.S. industry data, state totals, and capital expenditures for employers and 

nonemployers (Note: 2009 data were recalculated.) 

• For county data, go directly to the U.S. Census Bureau’s Nonemployer Statistics 
13 Annual Report of the Office of Economic Research, FY 2012 

Appendix A: Research 

Functions

Public Law 94-305: Research Functions of the Office of Advocacy

Public Law 94-305 established the Office of Advocacy within the U.S. Small Business Administration and included a list of Advocacy’s primary functions codified 

in 15 U.S.C. § 634b. Paragraph 11 was added to the list by P.L. 96-481 in 1980 and 

paragraph 12 was added by P.L. 106-50 in 1999.

15 U.S.C. § 634b: Primary functions of Office of Advocacy 

The primary functions of the Office of Advocacy shall be to—

(1) examine the role of small business in the American economy and the contribution which small business can make in improving competition, encouraging economic and social mobility for all citizens, restraining inflation, spurring production, 

expanding employment opportunities, increasing productivity, promoting exports, 

stimulating innovation and entrepreneurship, and providing an avenue through 

which new and untested products and services can be brought to the marketplace;

(2) assess the effectiveness of existing Federal subsidy and assistance programs 

for small business and the desirability of reducing the emphasis on such existing 

programs and increasing the emphasis on general assistance programs designed to 

benefit all small businesses;

(3) measure the direct costs and other effects of government regulation on small 

businesses; and make legislative and nonlegislative proposals for eliminating excessive or unnecessary regulations of small businesses;

(4) determine the impact of the tax structure on small businesses and make legislative and other proposals for altering the tax structure to enable all small businesses 

to realize their potential for contributing to the improvement of the Nation’s economic well-being; 

(5) study the ability of financial markets and institutions to meet small business 

credit needs and determine the impact of government demands for credit on small 

businesses;

(6) determine financial resource availability and to recommend methods for delivery of financial assistance to minority enterprises, including methods for securing 

equity capital, for generating markets for goods and services, for providing effective business education, more effective management and technical assistance, and 

training, and for assistance in complying with Federal, State, and local law; 

(7) evaluate the efforts of Federal agencies, business and industry to assist minority 

enterprises;
14 Annual Report of the Office of Economic Research, FY 2012 

(8) make such other recommendations as may be appropriate to assist the development and strengthening of minority and other small business enterprises;

(9) recommend specific measures for creating an environment in which all businesses will have the opportunity to complete [compete] effectively and expand to 

their full potential, and to ascertain the common reasons, if any, for small business 

successes and

failures;

(10) determine the desirability of developing a set of rational, objective criteria to 

be used to define small business, and to develop such criteria, if appropriate;

(11) advise, cooperate with, and consult with, the Chairman of the Administrative 

Conference of the United States with respect to section 504(e) of title 5; and

(12) evaluate the efforts of each department and agency of the United States, and 

of private industry, to assist small business concerns owned and controlled by veterans, as defined in section 632(q) of this title, and small business concerns owned 

and controlled by serviced-disabled [service-disabled] veterans, as defined in such 

section 632(q) of this title, and to provide statistical information on the utilization 

of such programs by such small business concerns, and to make appropriate recommendations to the Administrator of the Small Business Administration and to 

the Congress in order to promote the establishment and growth of those small business concerns.
15

Appendix B: Frequently 

Asked Questions

Small businesses comprise what share of 

the U.S. economy?

Small businesses make up:

99.7 percent of U.S. employer firms, 

64 percent of net new private-sector 

jobs,

49.2 percent of private-sector 

employment,

42.9 percent of private-sector payroll,

46 percent of private-sector output,

43 percent of high-tech employment,

98 percent of firms exporting goods, 

and

33 percent of exporting value.

Source: U.S. Census Bureau, SUSB, CPS; 

International Trade Administration; Bureau 

of Labor Statistics, BED; Advocacy-funded 

research, Small Business GDP: Update 2002-

2010, www.sba.gov/advocacy/7540/42371.

How many small businesses are there?

In 2010 there were 27.9 million small 

businesses, and 18,500 firms with 500 

employees or more. Over three-quarters 

of small businesses were nonemployers; this number has trended up over the 

past decade, while employers have been 

relatively flat (figure 1).

What is a small business?

The Office of Advocacy defines a small 

business as an independent business 

having fewer than 500 employees. For 

the small business definition by industry used in government programs and 

contracting, see www.sba.gov/content/

small-business-size-standards.

What percent of small businesses 

operate as . . . ?

The many kinds of small businesses are 

shown in table 1. The definitions overlap 

so the shares total more than 100.

Table 1: Small Business Shares

Kind of Business Share (percent)

Home-based business

Franchise

Sole proprietor

Corporation

Employer business

Nonemployer (business 

without employees)

52.0

2.0

73.2

19.5

21.5

78.5

Source: U.S. Census Bureau, SBO, SUSB. 

What is small businesses’ share of net 

new jobs?

Small firms accounted for 64 percent of 

the net new jobs created between 1993 

and 2011 (or 11.8 million of the 18.5 

million net new jobs). Since the latest 

recession, from mid-2009 to 2011, small 

firms, led by the larger ones in the category (20-499 employees), accounted for 

67 percent of the net new jobs.

Source: Bureau of Labor Statistics, BED. For 

the latest employment statistics, see Advocacy’s quarterly reports, www.sba.gov/advocacy/10871.

How can small businesses’ share of 

net new jobs be larger than their share 

of employment, yet their share of 

employment remains steady?

As firms grow, they change employment 

size classes. So as small firms grow, 

their growth counts toward small firm 

job gains; but if they pass the 500-employee mark, their employment is classified as large firm employment.

Do the unemployed become self-employed?

When finding work is difficult, starting a business can be just as difficult 

if not more so. But in March 2011, a 

significant number of the self-employed, 

5.5 percent or about 900,000, had been 

unemployed in the previous year. This 

figure was up from March 2006 and 

March 2001, when it was 3.6 and 3.1 

percent, respectively.

Which businesses create more jobs—

startups or existing businesses?

In the last two decades about 60 percent 

of the private sector’s net new jobs have 

been created by existing establishments 

and about 40 percent from the churn 

of startups minus closures. While firm 

births account for many new jobs, job 

losses from firm closures are equally 

important in accounting for net effects to 

employment levels.

Source: Bureau of Labor Statistics, BED.

Figure 1: Number of Businesses (millions)

3.5

4.5

5.5

6.5

11

13

15

17

19

21

1985 1990 1995 2000 2005 2010

Employers Nonemployers

Nonemployers (right scale)

Employer

Source: U.S. Census Bureau, SUSB and Nonemployer Sta s cs.

23
16

What happens to the jobs created by 

startups?

The total employment from a group of 

startups is highest at birth and declines 

as the firms age. Put another way, employment gains from growing businesses are less than employment declines 

from shrinking and closing businesses 

(figure 2).

What is the status of the startup market?

While the number of new employer 

businesses has recovered from the recessionary dip, the average employment of 

these businesses has been declining over 

the past decade (figure 3).

How many businesses do women own?

While women-owned firms have increased as a share of total businesses 

over the years, their size still remains 

smaller than national averages. The 7.8 

million women-owned firms averaged 

$130,000 in receipts in 2007 (table 2).

How many businesses do minorities own?

Asian-owned businesses numbered 1.6 

million in 2007 and have average receipts 

of $290,000. African-American-owned 

businesses numbered 1.9 million in 2007 

and have average receipts of $50,000. 

Hispanic-American-owned businesses 

numbered 2.3 million in 2007 and have 

average receipts of $120,000. Native 

American/Islander-owned businesses 

numbered 0.3 million in 2007 and have 

average receipts of $120,000 (table 2). 

How many businesses do veterans own?

Veteran-owned businesses numbered 3.7 

million in 2007, with average receipts of 

$450,000 (table 2).

Source: U.S. Census Bureau, SBO.

Is youth entrepreneurship increasing?

Self-employment among younger age 

groups has been dropping. From 2005 to 

2010, self-employment among individuals age 25 and under decreased 19 

percent (compared to a 7 percent drop 

in the overall population). In contrast, 

self-employment among those age 65 

and over increased 24 percent over this 

period as their population grew. Selfemployment rates increase with age; for 

example, they were 2 percent for those 

25 and under and 23 percent for those 65 

and over in 2010.

Source: Office of Advocacy calculations using 

U.S. Census Bureau, CPS data.

What are the home-based business 

trends?

The share of firms that primarily operate out of the home was unchanged from 

2002 to 2007 at 52 percent (the latest 

figure available). Employers had a lower 

share than nonemployers, 24 percent vs. 

63 percent, respectively, in 2007. Of the 

major industries, construction had the 

highest share of home-based businesses, 

70 percent. (Being home-based is not 

synonymous with working at home.) It is 

interesting to note that retail trade went 

from 49 percent home-based in 2002 to 

44 percent in 2007 while the share of 

Internet retail sales went from 1 percent 

to 3 percent of total retail sales.

Source: U.S. Census Bureau, SBO and Quarterly E-Commerce Report.

How does franchise survival compare 

with independent business survival?

Survival among independent businesses 

and franchises appears to be similar, as 

they have similar age distributions. Of 

course each potential business owner 

debating an independent business or 

franchise arrangement will have unique 

factors to weigh, such as their managerial talent and sales abilities.

Figure 2: Mean Employment Level for Firm 

Birth Year, 1995–2010 (millions)

3.07 2.96 2.77 2.61 2.48 2.36 2.15 1.94 1.82

0 1 2 3 4 5 6 to 10

11 to 15

16 to 20

Years in existence

Source: U.S . Census Bureau, BDS.

Employment per

establishment

Establishment 

starts (thousands)

Source: Bureau of Labor Statistics, BED.

Figure 3: Number and Size of Establishment Births

1

2

3

4

5

6

7

8

50

100

150

200

250

1998 2000 2002 2004 2006 2008 2010 2012

Births (right scale)

Average employment

(left scale)

Sole 

Table 2: Number of Firms and 

Receipts by Demographic, 2007

Business Owner 

Demographic

Firms 

(millions)

Receipts 

per firm 

($1,000)

All businesses

Male

Female

Equally male/

female

African-American

Asian

Hispanic

Native American/ 

Pacific Islander

Veteran

Publicly held

27.1

13.9

7.8

4.6

1.9

1.6

2.3

0.3

3.7

0.8

1,070

570

130

240

50

290

120

120

450

23,860

Source: U.S. Census Bureau, SBO.
17

Source: Advocacy research, Do Business Definition Decisions Distort Small Business Research Results? http://archive.sba.gov/advo/

research/rs330tot.pdf. Note that about half of 

the franchises in the data were nonemployers, 

which may not be the stereotypical franchise 

that individuals imagine.

How many businesses open and close 

each year?

About 10-12 percent of firms with employees open each year and about 10-12 

percent close (table 3). Employer firm 

births were down and deaths were up in 

the most recent available data because 

of the downturn. But establishment birth 

figures from 2011 show gains (figure 4). 

Nonemployer firms have turnover rates 

three times as high as employer firms, 

mostly because it is easier for nonemployers to start and stop, as they tend to 

be smaller than employer firms. Business bankruptcies numbered 48,000 in 

2011, a decline of the about 60,000 over 

the previous two years. Note that not all 

firm deaths are business bankruptcies, 

and many business owners file personal 

bankruptcy instead of business bankruptcy.

What is the survival rate for new 

businesses?

About half of all new establishments 

survive five years or more and about 

one-third survive 10 years or more. 

As one would expect, the probability 

of survival increases with a firm’s age. 

Survival rates have changed little over 

time (figure 5).

How do small and large businesses 

compare on innovation?

Of high patenting firms (15 or more in 

a four-year period), small businesses 

produced 16 times more patents per 

employee than large patenting firms. 

Research also shows that increasing the 

number of employees correlates with 

increased innovation while increasing 

sales does not.

Source: Advocacy-funded research, An Analysis 

of Small Business Patents by Industry and Firm 

Size, http://archive.sba.gov/advo/research/

rs335tot.pdf; Innovation in Small Businesses: 

Drivers of Change and Value Use www.sba.

gov/sites/default/files/rs342tot_0.pdf.

How are small businesses financed?

Small businesses are financed through 

owner savings; loans from family, 

friends, and commercial lenders; bonds; 

stocks; ownership stakes; and other 

arrangements. For detailed financing 

information, see Advocacy’s Frequently 

Asked Questions about Small Business 

Finance, www.sba.gov/advocacy/9601.

How are credit conditions for small 

firms?

For up-to-date statistics, see Advocacy’s 

quarterly reports, www.sba.gov/

advocacy/10871.

What is small businesses’ share of 

federal government procurement?

In fiscal year 2011, 21.7 percent of federal government small-business–eligible 

purchases went to small businesses. 

The Department of Defense accounted 

for the majority of small business procurement.

Source: Small Business Goaling Report, 2012, 

www.fpdsng.com/downloads/top_requests/

FPDSNG_SB_Goaling_FY_2010.pdf.

How are business churn and the economy 

related?

Business churn (the sum of the firm 

birth and death rates) tends to follow 

the change in GDP with a six-quarter 

lag (figure 6). Recently, churn has been 

down, which may be a response to the 

general decline in output.

Figure 4: Startups and Closures

(thousands of establishments, seasonally adjusted)

200

400

600

800

1,000 Deaths Births

Source: Bureau of Labor Statistics, BED.

1999 2001 2003 2005 2007 2009 2011 0

20

40

60

80

100

0 2 4 6 8 10 12 14

Percent of establishments

Years in existence

1995

2000

2005

2010

Figure 5: Cumulative Survival Rates for 

Establishments by Birth Year

Source: Bureau of Labor Statistics, BED.

Table 3: Employer Firm Births and Deaths*

1999-2000 2004-2005 2007-2008 2008-2009

Births 574,300 644,122 597,074 518,500

Deaths 542,831 565,745 641,400 680,716

*Figures are March to March. 

Source: U.S. Census Bureau, SUSB.
18

What are the effective tax rates for small 

businesses?

The average effective tax rate for businesses organized as sole proprietorships 

was 13.3 percent in 2004, with small 

S corporations facing the highest rates 

(table 4). (An effective tax rate is usually defined as the amount of tax paid as 

a fraction of net income or profit.)

Table 4: Effective Tax Rates, 2004

Legal form of Effective tax rate 

business ownership (percent)

Non-farm sole 

proprietorship 13.3

Partnership 23.6

S corporation 26.9

C corporation 17.5

Source: Advocacy-funded research, Effective 

Federal Income Tax Rates Faced By Small 

Businesses in the United States, www.sba.

gov/sites/default/files/rs343tot.pdf.

What legal form of organization are small 

businesses?

Sole proprietors and partnerships constituted 94 percent of nonemployers in 

2010 and of the corporations, most were 

likely S corporations which are taxed at 

personal rates. Twenty-two percent of 

small employers were C corporations in 

2009, with 71 percent taxed at personal 

rates and 7 percent nonprofits (figure 7).

Do you have any newer data?

For updates of many quarterly small 

business indicators, see www.sba.gov/

advocacy/10871. For more details and 

information, visit Advocacy’s general 

website, www.sba.gov/advocacy. Two 

of the most comprehensive pages are 

the Data Resources page and the Firm 

Size Data page. Both are accessible 

from www.sba.gov/advocacy/849. Two 

other often visited pages are the Banking

Study (www.sba.gov/advocacy/ 

7540/173967) and the State Small 

Business Profiles (www.sba.gov/advocacy/848). Additional questions may be 

emailed to advocacy@sba.gov.

Abbreviations & Sources

BED Business Employment Dynamics. U.S. Department of Labor, 

Bureau of Labor Statistics, 

www.bls.gov/bdm.

BDS Business Dynamics Statistics. 

U.S. Department of Commerce, 

Census Bureau, www.census.

gov/ces/dataproducts/bds.

CPS Current Population Survey. U.S. 

Census Bureau, and U.S. Department of Labor, Bureau of Labor 

Statistics, www.census.gov/cps.

SBO Survey of Business Owners. U.S. 

Census Bureau, www.census.

gov/econ/sbo.

SUSB Statistics of U.S. Businesses, 

U.S. Census Bureau, www.census.gov/econ/susb.

Figure 6: Business Churn versus Output (percent) 

Churn Real GDP

7.0 9 Real GDP (annualized change)

(right scale) 6

6.5 3

0 6.0 Business churn rate -3

(births plus deaths), -6 5.5 lagged six quarters (left scale)

-9

5.0 -12

1996 1998 2000 2002 2004 2006 2008 2010

Source: Bureau of Labor Statistics, BED (churn); Bureau of Economic 

Analysis (GDP).

,

Source: U.S. Census Bureau, SUSB and Nonemployer Statistics.

Sole 

proprietorship

16% Partnership

11%

S corporation

44% Nonprofit, 7%

C corporation

22%

Other, 0%

Small Employer Firms

Nonemployers

Figure 7: Legal Form of Organization of Small Business

Sole 

Proprietorship

86%

Partnership

7%

Corporations

7%

About the Office of Advocacy

The SBA’s Office of Advocacy was created by Congress in 1976. Part of the 

office’s mission includes conducting policy studies and economic research 

on issues of concern to small businesses. The office also publishes data on 

small firm characteristics and contributions. For further data and research 

information, visit the Office of Advocacy’s website at www.sba.gov/

advocacy/847.

September 2012
19 Annual Report of the Office of Economic Research, FY 2012

Appendix C: Small 

Business Data Resources

Small Business Data Resources: U.S. Federal Government

The following list includes major sources of data collected by the U.S. government and available for research on small business. 

Inclusion of a source on this list does not constitute an endorsement by the Office of Advocacy or the Small Business Administration.

Agency Data Program Demographics 

EmploymentExportsFinanceFirm Size DataFirms / EstablishmentsHealthIncome / Sales / ExpensesPensionsTaxesTraining

Administrative Off. of U.S. Courts Bankruptcy Filings √

Agriculture Business and Industry Guaranteed Loans √

Small Farms √ √

Commerce / Corporate Profits √

 Bureau of Economic Analysis Proprietors' Income √

Commerce / Census Annual Capital Expenditures Survey √

Business Dynamics Statistics √ √ √

Business Expenses √

County Business Patterns √ √

Nonemployer Statistics √ √ √

Statistics of U.S. Businesses √ √ √ √

Survey of Business Owners √ √ √ √ √ √ √

Survey of Income & Program Participation √ √ √ √ √ √

Commerce / Int. Trade Admin. Small & Medium-Sized Exporters √ √

Census & Bureau of Labor Stat. Current Population Survey √ √ √ √ √ √ √ √

Export-Import Bank Small Business Authorizations √

FFIEC Community Reinvestment Act data √

FDIC/FFIEC Call Report Data / Outstanding SB Loans √

Federal Proc. Data System Small Business Goaling Report √

Federal Reserve Board Flow of Funds √

Senior Loan Officer Opinion Survey √

Survey of Consumer Finances √ √ √

Survey of Terms of Business Lending √

Health and Human Services Medical Expenditure Panel Survey √

Labor / Bureau of Labor Statistics Business Employment Dynamics √ √ √

Job Openings and Labor Turnover Survey √ √

Survey of Employer-Provided Training √

Labor / Employee Benefits Sec. Admin. Private Pension Plan Bulletin √

Overseas Private Investment Corp. Annual Results √

Securities & Exchange Commission EDGAR Database of Publicly Traded Cos. √

Small Business Administration SBA Lending Data √ √ √

Small Business Investment Company √

SBA Office of Advocacy Small Business Research & Data √ √ √ √ √ √ √ √ √ √ √

Social Security Administration Self-employment √ √

Treasury / IRS / SOI Statistics of Income √ √ √
20 Annual Report of the Office of Economic Research, FY 2012

Small Business Data Resources: Other than U.S. Federal Government

The following list includes business data from private, nonprofit, university, international, and other sources. 

 Inclusion of a source on this list does not constitute an endorsement by the Office of Advocacy or the Small Business Administration.

Data Source Data Demographics 

EmploymentExportsFinanceFirm Size DataFirms/EstablishmentsHealthIncome / Sales/ ExpensesPensionsTaxesTraining

ADP, Inc. National Employment Report √

American Express Small Business Monitor √

Biz2Credit Small Business Lending Index √

Capital IQ Compustat Financial Data √

Center for Research in Security Prices CRSP Stock Data √

Challenger, Gray & Christmas Start-Up Activity √ √

Dun & Bradstreet U.S. Business Trends √ √

Employee Benefits Research Inst. EBRI IRA Database √

Small Employer Retirement Survey √

Small Employer Health Benefits Survey √

Intuit Small Business Employment Index √

Investment Company Institute The U.S. Retirement Market √

Kaiser Family Foundation Employer Health Benefits Survey √

Kauffman Foundation Kauffman Firm Survey √ √ √ √

Natl. Fed. of Independent Bus. Small Business Trends √ √ √ √

Natl. Small Business. Assoc. Economic Report √ √ √ √ √

Natl. Venture Cap. Assoc. Total Venture Capital Investments √

Thomson Financial Initial Public Offerings √

Thomson Reuters / Paynet Small Business Lending Index √

University of Michigan Panel Study of Entrepreneurial Dynamics √ √ √

U of NH, Ctr. for Vent. Research Angel Market Analysis √

Visa Small Business Review √