Transcript Todd Greene

Identifying Community Level
Factors Associated with
Microenterprises
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TODD GREENE
JUNE 17, 2014
Disclaimer
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The views expressed in this presentation
are the views of the speaker and do not
necessarily reflect the views or policies of
the Federal Reserve Bank of Atlanta or the
Federal Reserve System.
Outline
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1.
2.
3.
4.
5.
Labor market trends
Micro-businesses as a potential alternative to
formal employment
Impact of micro-businesses on local economic
performance
Attributes of communities with strong microbusiness presence
Implications
Unemployment Since 2004
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Unemployment Rate
12.0
Percent of labor force
10.0
8.0
6.0
4.0
2.0
0.0
2004
2005
2006
2007
2008
2009
United States
Source: Bureau of Labor Statistics
2010
2011
2012
2013
2014
Source: Bureau of Labor Statistics
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LT unemployed job finding has not improved
much since the recession
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1-month Job Finding Rate by Unemployment Duration
Select years
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Unemployed less
than 5 weeks
2007
36.9%
2009
29.1%
2014
34.5%
Unemployed 514 weeks
26.1%
18.2%
22.5%
Source: CPS Microdata, Author's Calculations
Unemployed 1526 weeks
21.4%
13.6%
17.3%
Unemployed 2751 weeks
18.5%
10.7%
12.7%
Unemployed 52
or more weeks
13.4%
8.9%
10.7%
But long-term unemployed have become more
likely to only get PTER work
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PTER Share of Job Finding by Duration
Select years
40%
35%
30%
25%
20%
15%
10%
5%
0%
Unemployed less Unemployed 5-14
than 5 weeks
weeks
2007
14.9%
17.7%
2009
26.0%
27.8%
2014
20.0%
21.6%
Source: CPS Microdata, Author's Calculations
Unemployed 1526 weeks
18.8%
27.4%
23.0%
Unemployed 2751 weeks
17.4%
29.0%
20.9%
Unemployed 52
or more weeks
19.0%
37.3%
30.0%
Reasons for not participating varies by age – e.g.,
disability is concentrated in pre-retirement ages
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Reasons for Not in the Labor Force, by Age, Q4 2013
Disabled or Ill-Not In Labor Force
Retired-Not In Labor Force
100%
In School
Other-Not In Labor Force
Taking Care of House or Family
Wants a Job
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 85
Sources: Current Population Survey, Author's Calculations
Self-employment or micro-businesses may be a viable
alternative for long-term unemployed
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 Over time, more people in the U.S. have turned to
self-employment as a source of income
The long-term trend in the self-employment data has
revealed a remarkable labor market phenomenon in the
U.S.
 More and more people seem to be choosing selfemployment as an alternative or supplement to formal
labor market
 Surge in self-employment is likely to continue

Self-Employment (Non-Farm Proprietorships) and
Wage-and-Salary Employment, 1969-2009
Millions
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200
Source: Northeast Center for Rural Development, 2011
180
160
140
120
Selfemployment
100
80
60
40
20
0
Wage-andsalary
employment
Share of Self-Employment as a Percent of
Wage-and-Salary Employment, 1969-2009
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30%
3.5% avg.
growth
Source: Northeast Center for Rural Development, 2011
25%
20%
15%
1.4% avg.
growth
10%
1960
1970
1980
1990
2000
2010
2020
Most of these self-employed are engaged
in micro-businesses
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 They are the smallest of small businesses
 A sole proprietorship, partnership or family
business that has fewer than five employees (Aspen
Institute and the Association for Enterprise Opportunity)
 Includes businesses with no paid employees
 In the U.S., microenterprises (establishments with
less than 5 employees) were around 89 percent of
all enterprises in 2010
 They provide 17-20 percent of nonfarm
employment
Micro-Businesses (Businesses with 0-4
Employees) in the U.S., 2002-2010
25
Millions
20
15
10
5
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
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Nonemployers in millions
Businesses with No Paid Employees, 20022010
25
20
15
10
5
0
2002
2003
2004
2005
Source: Bureau of the Census: County Business Patterns
2006
2007
2008
2009
2010
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Micro-business is Already a Local
Economic Development Tool
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 Embedded in economic development
entrepreneurship strategies:
“Development from below”
 “Bottom-up development”
 “Economic gardening”
 “Growing of your own”

 For some, favoring local micro-businesses or self-
employment is believed to be better for local
development
Micro-Business Assistance Programs
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 Have grown from only a few in 1985 to 696 programs
in 2008
 A total of 274,128 individuals received services from
microenterprise providers in FY08
 Lending activity by the 362 programs identified as
micro-lenders :



made an estimated 9,191 loans totaling $100,912,050 in FY
2008
held an estimated $173,637,960 in outstanding loans, and
held an estimated total of $ 235,282,605 in their microloan
capital pools.
Source: Aspen Institute. U.S. Microenterprise Census Highlights FY2008 Data
Rationale for Micro-Business as an
Economic Development Strategy
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 Generator of long-term sustainable jobs
 More likely adaptable to changing conditions (less
capital intensive)
 Potential tool to alleviate poverty
 Income patching
 Increased overall community economic activity/
vitality
Recent Research on Effects of Microenterprises / SelfEmployment on Local Economies
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Study
Measure of
entrepreneurship
Geography
Measure of
economic
performance
Deller and
Establishments that
McConnon (2009) employs 1-4 employees
(County Business
Patterns data from the
Census Bureau)
US States
Employment and
income growth
Goetz et al (2011)
Kauffman
Entrepreneurship Index
(KEI)
US States
Employment
growth
Rupasingha and
Goetz (2011)
The share of nonfarm
proprietorships (Bureau
of Economic Analysis
data)
US Counties
Employment and
income growth and
change in poverty
Summary of Research Findings
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 Entrepreneurship is favorable for state income and
employment growth
 Self-employment has a strong favorable impact on
income and employment growth in both metro and
nonmetro counties
 Self-employment helps reduce poverty in nonmetro
counties
Recent Research - Effect of LocallyOwned Micro-Businesses
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 Fleming and Goetz (2011): Locally owned micro-
businesses (1-9 employees) are favorable for county
income growth, compared to nonlocal businesses
 Rupasingha (2012): Locally owned micro-businesses
(1-9 employees) create more employment
opportunities and help reduce poverty in local
communities, compared to larger businesses
Opportunities for Policy and Practice
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 It is important to know what is needed for micro-
businesses to be successful


Individual level factors
Community level factors
 Understanding these factors may facilitate the
development of appropriate policies at the local level
 Some communities have a higher rate of microbusinesses than others

This creates an opportunity for researchers to study
community level factors that are associated with higher rates of
micro-businesses
Spatial
Variation
of Microenterprises
(with 0-4
Spatial
Variation
of Microenterprises
(1-4 Employers)
in the
U.S.,
employees)
in 2007
the U.S., 2007
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Data source: U.S. Bureau of the Census
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Characteristics of Micro-business Friendly
Communities: Access to Capital
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 Higher home ownership and median housing values
are associated with higher rates of micro-businesses
in a county
 Higher number of bank branches in a county is
associated with higher rates of micro-businesses in a
county
 Higher amounts of Community Reinvestment Act
(CRA) loans (less than $100,000 loans) are
associated with higher rates of micro-businesses in a
county
Characteristics of Micro-business Friendly
Communities : Economic/Labor Force Factors
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 Lower wage and salaries from formal employment
are associated with higher rates of micro-businesses
in a county
 Higher unemployment rates are associated with
higher rates of micro-businesses in a county
 The bigger the size of the local market (measured by
total personal income), the higher the rate of microbusinesses in a county
Characteristics of Micro-business Friendly
Communities: Demographic Characteristics
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 The more the college graduates in a county, the
higher the rate of micro-businesses
 Micro-business rate in a county tend to rise with
median age
 Counties with higher shares of married households
have higher rates of micro-businesses
 Counties that have higher shares of African
Americans have higher rates of micro-businesses
Characteristics of Micro-business Friendly
Communities : Natural Amenities
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 Natural amenities index: lakes, rivers, beaches,
mountain, open spaces, mild temperatures, etc
 This index is favorably associated with rate of microbusiness in a county
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

Higher natural amenities => more micro-businesses
High amenity areas are attractive for most people (they don’t
want to leave even after a lay off)
High amenity areas also attract businesses from outside
including micro-businesses
Ideas for Practice: Help for MicroBusinesses
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 Technical assistance to increase productivity
 Help with business plans and marketing
 Promote general business services
 Provide programs that stimulate the
entrepreneurial culture of a community
 Policy change with respect to issues such as
healthcare, taxation
 Help with access to capital
Micro-business:
General Implications for Practice
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 Alignment with workforce development efforts and
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


perhaps targeted toward populations facing
stubbornly high unemployment
More recognition of micro-businesses as an income
patching strategy for local economies
Potential to improve farm and nonfarm earnings in
rural communities
Potential to decrease population loss in rural
communities
Potential employment opportunities for women
Thank You!
 News You Can Use from the Atlanta Fed:
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