Small business has been called the “backbone” of America’s economy. They make up 99 percent of all firms in the country and have created roughly 60 percent of new jobs since the end of the Great Recession.

Accordingly, public policy has largely focused on supporting those companies. The United States Small Business Jobs Act, signed into law in 2010, provided credit and tax cuts to promote small- and medium-sized firms. Similar programs have been created in European and Asian countries. But is that really where the focus ought to be if policymakers want to create the most jobs?

In a study published in the February issue of The American Economic Review, authors Leslie Martin, Shanthi Nataraj, and Ann Harrison examined this question by looking at a program in India, which for six decades, has reserved certain products for manufacture by small- and medium-sized companies.

Figure 5 from Martin et al. (2017)

India eliminated most of the product restrictions between 1997 and 2007, opening an opportunity to examine employment growth among firms of all sizes when the supports were removed.

They found that regions that were more affected by the elimination of the small business reservations actually had higher job growth. Between 2000 and 2007, overall employment would have increased 6 percent in districts that had an average exposure to the policy.

And so, while policies that give special treatment to small firms may protect jobs in those businesses, the authors suggest that it comes at the expense of employment elsewhere.