This study extends work previously sponsored by the Office of Advocacy to examine small businesses' contribution to GDP. It incorporates an additional level of detail made possible by the availability of data classified according to the North American Industrial Classification System (NAICS). The most recent report on the topic was published in 2002.1 Gross domestic product (GDP) is the market value of goods and services generated by labor and property located in the United States. This report considers each component of private nonfarm GDP and estimates the proportion of it attributable to small businesses and the proportion of it attributable to large businesses. (For purposes of this analysis, small businesses are defined as those with fewer than 500 employees.)
Overall Findings
Small businesses continue to play a vital role in the
economy of the United States. During the 1998-2004
time period, small businesses produced half of
private nonfarm GDP.2 It is worth noting that while
the share of GDP attributable to small business has
remained relatively stable over the years, a detailed
look at the industry level reveals a more dynamic
picture. While the small business share of many
of the industries studied declined during this time
period, strong growth in small business-dominated
sectors helped the overall share remain at 50 percent.
The small business share of GDP has held virtually constant from 1998 through 2004 starting at 50.5 percent in 1998, reaching 49.9 percent in 2000 then rising to 50.7 percent in 2004. This represents several years of relative stability in the small business share since the mid-1980s.
Highlights
The adoption of the North American Industrial
Classification System (NAICS) has allowed
researchers to examine industries in greater detail.
The current estimates cover 16 nonfarm industry sectors. Of these sectors, two have small business shares greater than 80 percent: construction and other services.3 Five sectors have small business shares greater than 50 percent: real estate and leasing, professional and technical services, health and social services, arts and entertainment, and accommodation and food services. One industry, holding companies, is about equally split between large and small businesses.
Two industries have shares that are nearly 50 percent: trade (wholesale and retail) and administrative and waste management services. Six sectors' small business shares are less than 50 percent: mining and manufacturing, utilities, transportation and warehousing, information, finance and insurance, and education services.
The small business share of compensation has stabilized in several industries. It shows little change from 1998 through 2004 in manufacturing, utilities, finance and insurance, education, and other services.
Scope and Methodology
The U.S. Department of Commerce's Bureau of
Economic Analysis (BEA) publishes GDP by major
industry and by major value-added component. The
researchers estimate small- and large-firm shares for
each value-added component in each industry for
the years 1998-2002. Those shares are then applied
to the BEA data to separate each component into a
large and small-business share. Once all the components
are divided, they can be added up to determine
each industry's contribution. All the small business
components can then be added to determine how
much of private nonfarm GDP was produced by
small businesses and how much was produced by
large businesses. The 2003 and 2004 data are estimates
based on preliminary small business receipt
shares.
Additional data sources are needed to generate business-size shares for each value-added component in each industry. The data that underlie the firm-size shares come from the Census Bureau's Statistics of U.S. Businesses. The calculation of the small business share of the noncompensation components is based on SUSB data and annual data from the Internal Revenue Service's Statistics of Income program.
This Small Business Research Summary summarizes one of a series of research papers prepared by the U.S. Small Business Administration's Office of Advocacy or its research contractors. The opinions and recommendations of the authors of this study do not necessarily reflect official policies of the SBA or other agencies of the U.S. government. For more information, visit the Office of Advocacy's Internet site at www.sba.gov/advo.
1 Joel Popkin and Company,
Small Business Share of NAICS Industries (pdf),
U.S. Small Business Administration, Office of Advocacy, June 2002.
2 Historically, the source data for making estimates of small business
GDP have often not covered the agricultural sector.
3 "Other services" are defined in NAICS 81. This sector, officially titled
"other services except public administration," comprises establishments
from a variety of industries solely because they are engaged in services
that are not specifically classified elsewhere in the system. The range
of activities spans equipment and machinery repair, dry cleaning and
laundry services, photofinishing services, and dating services. NAICS 81
covers 212,485 firms, 211,835 of which are small (99.7 percent).
The small business share of the nonlabor components
of GDP has risen from 1998 to 2002, the last
year for which there are benchmark data for estimating
the noncompensation shares.
Information courtesy of the Small Business Administration.
