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More Small Firms Mean More Jobs
Here at Let’s Save Michigan we are strong believers in the idea that Michigan needs to make more of an effort to revive its entrepreneurial culture. In order to create sustained job growth we need to develop economic development policies that place more of a focus on creating jobs by one’s and two’s.
Well apparently we aren’t alone in that sentiment.
The latest edition of the Harvard Business Review includes a new report that links job growth to small businesses.
Our research shows that regional economic growth is highly correlated with the presence of many small, entrepreneurial employers—not a few big ones. In fact, a study of U.S. metro regions showed that cities whose number of “firms per worker” was 10% higher than the average in 1977 experienced 9% faster employment growth between 1977 and 2000.
While there is a lot of discussion about the impact of taxes and regulation on job growth, it is worth noting that the study found that job growth was largely independent of these or any other outside factors and was tied to the prevalence of small businesses.
Earlier in the year we reported on Rick Haglund’s, independent journalist and blogger, special report for the The Center for Michigan on the prevalence of second-stage companies in Michigan, how they’re transforming the economy and why the state may need to rethink its economic development strategy.
A second-stage company has between 10 – 99 employees and $10 to $50 million in sales. While Fortune 500 companies such as General Motors, Kellogg and Dow Chemical have laid off thousands of employees during Michigan’s recession, second-stage companies continue to grow. These firms employed 1.3 million workers in 2007 and comprised Michigan's largest employment segment. The 57,000 second-stage firms in the state added 137,249 jobs between 1993 and 2007 according to an Edward Lowe Foundation report.
As Michigan transforms during this tumultuous period where we’ve seen our traditional industries and employers reinvent themselves, it makes sense that we reexamine our economic development policies and ensure they still make sense in a rapidly changing 21st century economy. To that point we must question whether it makes sense to keep throwing all our tax breaks behind landing the next big factory or Fortunte 500 looking to move its headquarters. As the Harvard Business Review states:
Politicians enjoy announcing a big company’s arrival because people tend to think that will mean lots of job openings. But in a rapidly evolving economy, politicians are all too likely to guess wrong about which industries are worth attracting. What’s more, large corporations often generate little employment growth even if they are doing well. . . . Instead of trying to buy their way out of the recession with one big break to one big employer, politicians should reduce costs for start-up companies and small businesses.
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