Joe Manchin off-target on small business share of West Virginia's economy

Sen. Joe Manchin, D-W.Va., recently cheerleaded West Virginia small businesses in a tweet from his Senate account.

Manchin tweeted, "Did you know #WV has more than 120k small businesses & they make up about 96% of our state's economy? Remember this & #shopsmall #WVSBDC #SBDCday"

We were surprised that small companies comprise 96 percent of West Virginia’s economy, so we took a closer look. As it turns out, Manchin used the wrong terminology, ultimately making his claim incorrect.

We turned to data from the federal Small Business Administration, which offers fact sheets about small businesses in every state.

Manchin’s in the ballpark for the number of small businesses in the state. The SBA counts 115,673 small businesses, a number that is apt to fluctuate regularly, as companies start up and go out of business. (The agency’s definition of a small business is one with fewer than 500 employees.)

And the fact sheet has a number close to the 96 percent figure Manchin cited. The SBA says that 98.9 percent of West Virginia’s businesses are small businesses.

But that does not support what Manchin said. Saying that almost 99 percent of West Virginia's businesses are small firms is not what economists refer to as a "percentage of the economy." That term refers to the percentage of all economic output, which is sometimes called state-level gross domestic product.

The fact sheet doesn’t provide small business output as a percentage of the economy, but it’s certainly well below 96 percent.

Why? Because while small businesses account for nearly 99 percent of employers in the state, they only account for about half — 50.1 percent — of West Virginia employees. So it is not credible to say that half of the workforce produces 96 percent of the output while the other half — the big-company workforce — produces just 4 percent of output.

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In fact, it wouldn’t be surprising if the half of West Virginia employees working for big companies account for more than half of economic output, said Gary Burtless, an economist with the Brookings Institution.

"In the nation as a whole, employees at smaller businesses tend to earn lower compensation than employees in larger businesses, probably indicating they are less productive," Burtless said. "All these facts lead me to believe there is no possible way those 120,000 small businesses can account for 96 percent of the production or output of the West Virginia economy."

Manchin’s office declined to comment for this article.

Manchin said that small businesses in West Virginia "make up about 96 percent of our state's economy."

This appears to be a case of mistaken terminology. Small businesses do make up nearly 99 percent of the state’s employers, but only half of its employees. The way it is worded, Manchin's claim exaggerates the output of small businesses and underplays the economic influence of large companies in the state. 

We rate the statement Mostly False.

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2018-03-26 22:06:53 UTC

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Mostly False

Small businesses in West Virginia "make up about 96 percent of our state's economy."

Joe Manchin

U.S. Senator, D-W.Va.

https://twitter.com/Sen_JoeManchin/status/976533912422944768

a tweet

Wednesday, March 21, 2018

2018-03-21

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