The impact of small business on the US economy in 2 extreme charts

There’s a fascinating statistical phenomenon called a “fat-tailed distribution” that shows up in several places in economics, sociology, ecology, and elsewhere. These distributions describe situations where a large part of a population sits very close to the average on some measure, but a handful of outliers have a hugely disproportionate impact.

Fat-tailed distributions are at the heart of Nassim Taleb’s idea of “black swans”, or apparently unlikely events that nevertheless happen. Most trading days on the NYSE are relatively boring, but a handful of extreme swing days are responsible for a huge part of long-term price movements.

It turns out that the number of employees at companies also has a distribution with very fat tails.

In a note on the state of America’s small businesses, Deutsche Bank chief international economist Torsten Sl√łk pointed out that an overwhelming number of American firms are small businesses with fewer than twenty employees:

Despite the extremely large number of small companies, it turns out that the relatively tiny group of outlier large firms are responsible for a hugely outsize share of actual employment. While only about 0.3% of US firms have over 500 employees, those large companies account for half of employment:

This works as another example of how in many cases, outliers are extremely important.

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