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Surprisingly, despite all the attention devoted to the job creation attributes of small businesses, there has been an insignificant amount of research on the hiring decisions of entrepreneurs. What determines an entrepreneur's decision to employ more workers and expand the size of the business? Why do the bulk of small businesses employ less than 9 people, and why are more than 50% of small businesses sole-proprietorships with no employees? This paper is an attempt to address this issue empirically. Specifically, it highlights the role of health care regulation--health insurance mandates--on a small firm's decision to increase employment and expand the firm.

While there is general agreement that health insurance mandates affect small firms disproportionately more, there are conflicting views about whether they distort firm behavior in terms of firm's decision to offer insurance coverage to workers, reduce coverage and their impact on small firm premium costs.

Aparna Mathur is a research fellow at AEI.