"An International Comparison of Small Business Employment"

John Schmitt and Nathan Lane of the CEPR:

An International Comparison of Small Business Employment, by John Schmitt and Nathan Lane, CEPR: Contrary to popular perceptions, the United States has a much smaller small-business sector (as a share of total employment) than other countries at a comparable level of economic development, according to this new CEPR report. The authors observe that the undersized U.S. small business sector is consistent with the view that high health care costs discourage small business formation, since start-ups in other countries can tap into government-funded health care systems. [Note: Click on figures for larger versions]

     

There's another factor that could also be contributing besides competitive disadvantages with countries that have government funded health care systems. A more extensive social safety net can reduce the risk of attempts at entrepreneurship. If there is an extensive social safety net to fall back upon if things don't work out, you might be more willing to quit the job you hate (the one with health insurance for the kids) and sink everything you have into a small business that you've always wanted to run. But I'm not sure the data above support this interpretation, i.e. that there is an obvious positive association between the strength of social insurance and the prevalence of small business. But it is highly suggestive, and regressions that control for other cross-country differences could help to settle the issue. In any case, one thing is clear, according to these measurements the US has low numbers relative to other countries in the sample.