It is no surprise that small businesses are extremely important when it comes to job growth, and a recently released Federal Reserve Bank of Boston report not only confirms that but says that small business job growth in New England is outpacing the rest of the country.
In New England, the report says small businesses “collectively employ millions of workers, anchor local communities, supply large institutions with goods and services, and are incubators of regional innovation and job growth.”
The report – “The large role small businesses play in employment in New England” – was written by Nini Liu and Riley Sullivan, both of Boston’s Federal Reserve. It covers the time from 2020-2023.
A small business is defined by the Small Business Administration as having less than 500 employees, but the report identifies three firm sized groups (1-19, 20-99, and 100 to 499 employees).
According to the Boston Fed, small businesses provided more than 3.2 million jobs in 2023, more than 47.5 percent of the region’s total employment. Nationally, small businesses have accounted for 46.3 percent of employment, according to the Boston Fed.
From 2020-2023, the Boston Fed says nearly 90 percent of net job creation in New England was from small businesses, “often from small start-ups growing into larger businesses.”
In New England, and the nation, most businesses are “very small,” employing less than 20 workers. “In 2023, just over 82 percent of businesses in New England and 84 percent in the United States employed fewer than 20 workers. And the majority of those firms are at the low end of the range, employing very few or just a single worker.”
All New England states, except Massachusetts, “exceeded the national employment share for all three business size firms.”
Leading the region was Vermont, where small businesses accounted for 63 percent of the state’s employment. Businesses with less than 20 employees accounted for more than 25 percent of the jobs in Vermont.
“In every county in Vermont, Maine, and Rhode Island, the employment share of businesses with less than 20 workers was higher than the national share.”
It is in the urban centers, and areas where large businesses, universities or hospitals are headquartered, where very small business employment was lower than the national rate.
Here are other observations contained in the Boston Fed’s report:
- “Small businesses drove job creation in both the region and the country from 2000 to 2023, while firms with 5,000 or more employees annually lost jobs, contributing negatively to employment growth.”
- It called Vermont an outlier with 62.3 percent of net job creation among small business. In the remainder of the region that rate ranged from 7.9 percent in Connecticut to 17.3 percent in Rhode Island.
- Vermont also had the highest job growth in the region for firms with 20 to 499 employees, at 69.9 percent. Connecticut also had a high rate, 63.8 percent. Among other states in the region, the range was from Rhode Island at 22.4 percent to Massachusetts at 42.8 percent.
- The Boston Fed report also observed that “much of the job creation by small businesses has come from young, rapidly growing firms that are small only because they are new. Studies that control for the age of businesses show that age, not size, is the attribute driving job creation and that these young and growing businesses eventually become larger firms with more stable headcounts.”
The Boston Fed also identified critical issues among small businesses. The cost of and availability of insurance – health care and property – and inflation were main concerns. The report says that in 2022, inflation was the top concern of more than 30 percent of small businesses throughout New England and nationally. In 2025, inflation concerns dropped to 10 percent in New England 12 percent nationally. With recent growth in inflation, those numbers are much higher.
In a more recent survey, released a few days ago by the U.S. Chamber of Commerce, which publishes a small business index, inflation for the latest quarter was the biggest concern of small businesses at 57 percent, up from 48 percent a year ago.
“By sector, small businesses in services (66 percent), retail (59 percent), and manufacturing (58 percent) are more likely to cite inflation as a challenge than those in professional services (46 percent),” the Chamber’s report says.
The chamber listed revenue as the second greatest challenge for small businesses at 26 percent, and affording employee benefits and healthcare at 20 percent.
Only 27 percent of small businesses rated their business health as “very good, according to the chamber report, a drop of 5 percent from June.
