It’s the season of resolutions, and creating a better environment for locally owned businesses to succeed ought to be near the top of every elected official’s list of priorities.
That’s the suggestion of a raft of recent research from prominent economists, sociologists, and other researchers, which 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 brief also explains why that’s so troubling. The authors round up the recent research on firm age and job creation, and 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.”
While no one is certain what’s caused the drop in new businesses, the same policies and conditions that have made it harder for small, local businesses to succeed may well be impeding new entrepreneurs.
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 [PDF] by an economist at the Federal Reserve Bank of Atlanta.
Using data on every U.S. county in the period between 2000 and 2008, the author, Anil Rupasingha, finds that local entrepreneurship has a positive effect on three critical indicators of economic performance: It 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.
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