Institute for Local Self Reliance - A raft of recent research from prominent economists, sociologists, and other researchers finds that small, local businesses are critical to overcoming many of our biggest challenges, from reducing economic inequality to building resilient communities.
Here’s a roundup of the new studies that give five compelling reasons for policymakers to focus on local business in 2016.
1. Fewer new businesses are starting, and that’s bad news for long-term job creation.
Employment is finally on the rebound, but high rates of underemployment and minimal wage growth suggest all is not well in the U.S. job market. One disturbing trend may be to blame: the creation of new businesses has fallen sharply.
While startups accounted for 16 percent of all businesses in the late 1970s, that share has fallen by half, to 8 percent, explains a new brief from the Kauffman Foundation. The authors find that young firms are the major contributor of new jobs to the U.S. economy.
“New businesses account for nearly all net new job creation and almost 20 percent of gross job creation,” they write, adding, “companies less than one year old have created an average of 1.5 million jobs per year over the past three decades.”
2. Places with a high density of locally owned businesses experience higher income and employment growth, and less poverty.
Counties in which locally owned businesses account for a larger share of economic activity are more prosperous, according to a new study by an economist at the Federal Reserve Bank of Atlanta.
The author, Anil Rupasingha, finds that local entrepreneurship increases county per capita income growth, increases county employment growth, and decreases county poverty rates. Rupasingha finds that this effect of local ownership is most pronounced when businesses are also small, defined as having fewer than 100 employees.
3. Small businesses make communities more resilient during hard times.
In times of economic distress, smaller businesses lay off fewer employees and bounce back quicker, according to a new analysis from economists at Yale University and University of Bristol.
During the downturn of March 2008 to March 2009, for instance, the employment growth rate of large employers fell 1.65 percent more than the growth rate of small employers.
“Large employers on net destroy proportionally more jobs relative to small employers when unemployment is above trend, late in and right after a typical recession” the authors write.
4. Locally owned businesses encourage residents to put down roots.
A recent study, published in the journal Sociological Spectrum, finds that the presence of locally owned retailers is one factor that leads residents to stay put. The authors of the study find that states with a greater share of locally owned retail experience a less-steep slope of people, especially college graduates, migrating out from their counties.
Locally owned businesses also retain residents in another way: They create the kinds of jobs people want to keep. In another paper, two authors from Baylor University find that workers at locally owned firms, as well as at small firms, are more loyal to their employers than workers at absentee-owned firms or large firms. They find that 56 percent of workers at locally owned firms scored in the highest category of loyalty, compared to just 39 percent of workers at non-local firms.