Firm size and the recession

The recession hurt virtually every household and every business in the country. N.C. State University economist MIke Walden considers which businesses were hurt the most.

“Well, I think what I’m going to say makes a lot of sense to people. What research has found … is that both small businesses, and by a small business we’re talking about businesses that have less than 20 workers, as well as new businesses.  And here we’re defining a new business as one that’s been in existence less than 5 years. So both small businesses and new businesses were battered more by the recession. They really got walloped as compared to their larger and older counterparts.

“And I think that makes sense for a couple of reasons: One, small businesses typically have less ability to get credit. It’s simply because they’re small and they have to rely more on personal finance.  For example, a small business person might finance his or her small business by taking out a home equity loan. Well, obviously during the recession the real estate market was battered.  Home equity went down, so obviously that would have hurt perhaps disproportionately small businesses. They also have less ability as small business to advertise.

“And then a young business, they simply have less experience in dealing with economic downturns. If you’ve been a business around for 20 or 30 years, you’ve actually been through several recessions. And if you’ve survived, you perhaps know the kinds of things you have to do to survive. If you’re a new business, maybe eventually you’ll learn that, but it may take a couple of recessions to do that. And unfortunately this was a very severe recession, so you may not have time to learn those survival techniques.”

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