The report: Back to work, the role of small businesses in employment and enterprise, was launched yesterday at the Liberal Democrat conference.
John Walker, national chairman, Federation of Small Businesses, said: "Small firms play a unique role in providing the way to employment, especially for disadvantaged groups.
"They have a greater tendency to take on those that would struggle to find a job, those who have not worked for a long time, have little experience or have been sick."
He added: "They have also shown resilience in the face of recession, still taking on some 1.3 million unemployed people per year. While not all of these will be new jobs, this is nevertheless evidence of the crucial role small firms are playing in our economic recovery."
The report also showed that each year small and medium sized businesses take on around 1.3 million unemployed and disadvantaged people. In contrast, large firms with more than 250 employees hire fewer than 130,000 on average in these catergorise, the report states.
Despite these positive signs the FSB claims the labour market remains fragile. Recently unemployment has fallen, however, confidence in the market remains low,while company finances are squeezed with rising costs and falling demand.
The data for the FSB report was taken from the EU Labour Force Survey (LFS), which surveyed approximately 100,000 people in the last quarter July to September.