Why Obama's Small Business Bill is Wrong About Job Creation

Last Updated Oct 7, 2010 2:56 PM EDT

In drumming up support for his Small Business Bill, President Obama has often argued that "small businesses produce most of the new jobs in the country." Obama signed the bill today.

The only problem is that his observation is not quite accurate. According to Harvard Business School professor Josh Lerner, what really creates jobs are new businesses, not small ones. A small businesses that is 30 years old is no more likely to create jobs than a large business of the same age, says Lerner, quoting research by John Haltiwanger, Ron Jarmin and Javier Miranda.

But, "a business under a decade old is a huge job creator," Lerner said on an interview Public Radio's The Takeaway.

The bill offers a smorgasbord of aid for young and old small businesses including tax breaks, loan guarantees, accelerated capital investment write-offs and tax advantages for angel investors.

"These policies make sense for small businesses, but not young businesses," said Lerner. Instead, if the policy goal is to create jobs, the government would be better off with actions that make it easier for young companies to get access to equity financing.

(White House photo)

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.