Sequestration Study: 956,181 Small Business Jobs at Risk

New analysis projects nearly half of 2.14 million sequestration-related job losses to hit small business

Arlington, Va. – A new analysis of an economic report concludes that 956,181 small business jobs nationwide are among those at risk under sequestration, a finding that heightens concern about widespread job losses across defense and non-defense employers of all sizes starting in 2013.

The analysis updates a study conducted for the Aerospace Industries Association in July by Dr. Stephen S. Fuller, Dwight Schar Faculty Chair and director for Regional Analysis at George Mason University, in conjunction with Chmura Economics and Analytics.

The study projected a loss of 2.14 million American jobs in the event that Budget Control Act mandates take effect on January 2, 2013 – the date on which $1.2 trillion budget cuts begin to impact federal programs.

“Further analysis shows that nearly half of all sequestration job losses would come from small businesses,” said Fuller. “This is a crucial finding given the importance of small business job creation to the economy and their role as sources of innovation for national defense.”

Fuller’s analysis concludes that approximately 45 percent of all job losses resulting from cuts to DOD and non-DOD programs in the first year of sequestration would come from businesses with 500 or fewer employees.

“At a time when our leaders are calling for policies to help small businesses boost their capacity for job creation, sequestration threatens to drain the economy of a vital source of economic growth and innovation,” said AIA President and CEO Marion C. Blakey. “Clearly, sequestration is not only a concern for prime contractors and international manufacturers. Sequestration has the potential to do equal harm to Main Street and Wall Street.”

According to the Small Business Administration, 20 percent of Defense Department prime contracts and 35 percent of DOD subcontracts in 2011 were awarded to small firms. In 2011, 18 percent of NASA prime contracts went to small businesses and 38 percent of its subcontracts to small companies. Additionally, between two-thirds and three-quarters of defense industrial purchases are directed to small suppliers, many of which are the only source of specialty parts and technologies for the U.S. military.

“The threat of sequestration is already causing my company to be very cautious,” said Joe Murphy, chairman of The Ferco Aerospace Group, a small family-owned aerospace sheet metal fabrication business in Franklin, Ohio. “Congress doesn’t realize how quickly manufacturing capability will be lost with sequestration. It can take 12 months or longer to train a welder and once those skills are lost, it will take months to recover.”

The SBA says that small firms employ half of all private sector employees. According the U.S. Census Bureau, small businesses create 90 percent of all new jobs on an annual basis.

“The last thing this country can afford is legislative trickery like automatic sequester cuts that knock the legs out from underneath small and minority businesses that generate 90 percent of new jobs every year,” said Roger A. Campos, president and CEO of the Minority Business Roundtable. “Sequestration budget cuts set to hit in January will destroy a total of over 2 million American jobs, half in smaller businesses. The uncertainty has already caused business owners to stop hiring. It will take bipartisan agreement to repeal sequestration and replace it with a smarter approach to the budget and debt reduction. Let’s not put small businesses on the chopping block.”

“This important report highlights how small businesses – the backbone of our economy – are especially vulnerable to sequestration,” said Mackenzie Eaglen, resident fellow at the Marilyn Ware Center for Security Studies. “From a national security perspective, letting the avoidable occurrence of sequestration force small businesses to exit the defense industry or go out of business altogether would not only hurt our economy but taxpayers.”

More information on sequestrations impact on the U.S. economy can be found here.