Friday, September 11, 2009

Healthcare Reform and Small Business, Part I

President Obama’s speech Wednesday evening has everyone talking about healthcare reform once again. The whole discussion has many of us confused. In fact, in the end it may turn out that no reform bill can pass because we all don’t understand the issue well enough to come to agreement.

One argument against healthcare reform that has always seemed to make sense to me is that small businesses can’t afford insurance for their employees (in fact most of the healthcare reform bills proposed have some sort of exemption for small businesses. You won’t have a hard time understanding why this particular argument appeals to me. Central Dallas CDC is a small business, and like most nonprofits our business model is usually pretty much hand-to-mouth. We provide healthcare insurance for our employees, but if it wasn’t for help from Central Dallas Ministries I don’t see how we could afford it.

I can easily imagine many—very many—small businesses going out of business if the government required them to provide healthcare insurance for their employees.

So I did something that I try to do whenever I can, I researched the issue. Here’s what I reasoned: If providing universal healthcare hurts small businesses, then other countries (like all the ones in Europe) that have universal healthcare should have fewer small businesses. Q.E.D.

It only took a moment to check my hypothesis (isn’t the internet wonderful?), because the first search that I ran turned up the following study: An International Comparison of Small Business Employment, by John Schmitt and Nathan Lane, published by the Center for Economic and Policy Research in August 2009—only last month. You can find the whole study here:, but here are the key findings:

• The United States has the second lowest share of self-employed workers (7.2 percent) – only Luxembourg has a lower share (6.1 percent). France (9.0 percent), Sweden (10.6 percent), Germany (12.0 percent) the United Kingdom (13.8 percent), Italy (26.4 percent) and 14 other rich countries all have higher proportions of self-employment.

• The United States has among the lowest shares of employment in small businesses in
manufacturing. Only 11.1 percent of the U.S. manufacturing workforce is in enterprises with
fewer than 20 employees. Eighteen other rich countries have a higher share of
manufacturing employment in enterprises of this size, including Germany (13.0 percent),
Sweden (14.4 percent), France (18.0 percent), the United Kingdom (18.1 percent), and Italy
(30.9 percent). Only Ireland (9.6 percent) and Luxembourg (8.5 percent) have a lower share
of manufacturing employment in enterprises with fewer than 20 employees. (Raising the
cutoff for a small business to fewer than 500 employees does not significantly alter the
relative position of the United States.)

• U.S. small businesses have a much lower share of employment than the comparison
economies do in the two high-tech fields for which the OECD publishes data: computer related
services and research and development.

This is exactly the opposite of what one would expect to find if there was a negative correlation between universal healthcare and small business. In fact, as we’ll look at in Part II of this essay, the authors of the study believe exactly the opposite may be true—that other countries have more small businesses because they have universal healthcare.

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