Study: Sequestration Leads to Massive Job Loss

New study analysis finds that nearly a million small business jobs are among those at risk under sequestration, a finding that has heightened concerns about widespread job losses across defense and non-defense employers.

The initial study, conducted by the Aerospace Industries Association (AIA), projected 2.14 million American jobs could be lost if Budget Control Act mandates take effect in January 2013—the same time when budget cuts of $1.2 trillion will impact federal programs.

According to a statement from AIA, Dr. Stephen Fuller, the director for Regional Analysis at George Mason University, concluded nearly 45% of the jobs lost would come from businesses with 500 or fewer employees. That means as many as 956,181 small business jobs are at risk.

“Further analysis shows that nearly half of all sequestration job losses would come from small businesses,” says Fuller in the statement, who also worked in conjunction with Chmura Economics and Analytics. “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.”

According to the Small Business Administration (SBA), 20% of Defense Department prime contracts and 35% of DOD subcontracts in 2011 were awarded to small firms. In 2011, 18% of NASA prime contracts went to small businesses and 38% of its subcontracts to small companies. Additionally, the statement says between 2/3 and 3/4 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,” says Joe Murphy in the statement.

Murphey, who is Chairman of The Ferco Aerospace Group, a small family-owned aerospace sheet metal fabrication business in Franklin, Ohio, is also concerned about how his business will bounce back if he has to cut jobs.

“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.” 

According to the statement, the SBA data shows that small firms employ half of all private sector employees and small businesses create 90% of all new jobs on an annual basis.

“The uncertainty has already caused business owners to stop hiring,” Roger A. Campos, president and CEO of the Minority Business Roundtable, also says in the statement. “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.”

Click here to view state-by-state numbers and Dr. Fuller's analysis.