While our economy’s improved on paper, most of us know in our gut that’s not the whole story. During the last few years, quality job creation has been anemic, and way too many workers have jobs that don’t allow them to support themselves and their families. Since the end of the Great Recession, 11.3 million jobs have been created — but average wages have dropped 23 percent. The top five fastest-growing occupations have been in low-wage work, in personal care and at places like strip malls and fast-food restaurants. These are all jobs that also need some form of public assistance. We hit another tipping point as 2016 began: middle-income households have become the minority in America for the first time since World War II. And African-Americans and Latinos fare even worse.
[custom_headline type=”left” level=”h3″ looks_like=”h4″]We Need New Priorities: Think Local. Think Small.[/custom_headline]
As our nation’s job creators, small businesses can be a part of the solution. According to the Federal Reserve Bank of Atlanta, places with a high density of locally-owned businesses have higher incomes and better employment growth, and much less poverty. And, economists at Yale and the University of Bristol write that in times of high unemployment, small businesses both create and retain more jobs than large companies do, and they fully recover from recessions much faster than large companies.
In fact, they’re currently outpacing national chains and mega-retailers while facing enormous challenges:
- One-in-three independent businesses that applied for a bank loan in the last two years failed to secure one. That figure was 54 percent among businesses owned by people of color, and 41 percent among young firms, whose expansion has historically been a key source of net job growth.
- Large national chains use their market power to secure better pricing and terms from suppliers, and outspend small businesses on marketing and advertising.
- Majorities of small businesses an uneven playing field when it comes to economic development money, and say regulators should more vigorously enforce antitrust laws.
If we help empower small business owners to increase their competitiveness while at the same time creating quality jobs with better wages, then every community and worker in America benefits. The following things may sound idyllic, but they’re facts:
- Jobs at small businesses are more secure about their jobs because small-business owners aren’t pressured by stockholders’ profit expectations, and layoffs are typically used only as a last resort
- Small and independent businesses employ more people directly per dollar of revenue, and they’re the customers of local printers, accountants, wholesalers, farms, attorneys, etc., expanding opportunities for local entrepreneurship
- They also generate more tax revenue per sales dollar, so a greater percentage of local independent businesses keeps your taxes lower
- Each dollar spent at an independent businesses returns 3 times more money to the local economy than one spent at a chain (and hundreds of times more than buying from Amazon)
- Small businesses typically consume less land, carry more locally-made products, locate closer to residents, and create less traffic and air pollution
- Compared to big businesses, small businesses donate more than twice as much per sales dollar to local nonprofits, events, and youth sports teams
There are many reasons to favor local small businesses, but it boils down to this: a community’s level of wealth and well-being is positively related to how much of its local economy held by local businesses, and median incomes have risen faster in places with more small businesses compared to those dominated by big businesses.
[custom_headline type=”left” level=”h3″ looks_like=”h4″]Small Businesses Are Growing, But State Policies Are Short-Changing Them[/custom_headline]
Independent businesses experienced healthy sales growth and expanded hiring in 2015, according to a large national survey from the Institute for Local Self-Reliance. In fact, small businesses saw a 3 percent jump in sales during the holiday season, versus just over 1 percent at large national chains. This local-first success means more jobs! Small businesses saw a significant increase in hiring, with overall employment at the independent businesses surveyed expanded by 5.6 percent in 2015.
Politicians at all levels routinely praise small businesses for their “mom and pop” feel and their contributions to job creation, but states actually give big businesses the dominant share of their economic development incentives. An analysis from Good Jobs First found that large national companies received 70 percent of those deals and 90 percent of the dollars — and a lot of those deals and awards have barriers to entry that exclude small businesses entirely.
States’ policy priorities are exactly backwards when it comes to creating good jobs, according to another report from The Center On Budget And Policy Priorities. To build strong economies, states should focus on producing more home-grown entrepreneurs and on helping young firms already located in the state to survive and to grow ― not on cutting taxes and trying to lure businesses from other states.
According the data, the vast majority of jobs are created by businesses that are already present in a state — not by the relocation or branching into a state by out-of-state firms. Economic development policies that ignore these fundamental realities about job creation are bound to fail. One good example is the use of deep income tax cuts to spur business growth: it’s an extremely wasteful way to help small businesses. And those same cuts take money away from schools and other public investments like infrastructure essential to producing and supporting the talented workforce that entrepreneurs need.
[custom_headline type=”left” level=”h3″ looks_like=”h4″]Now Is The Time[/custom_headline]
We can transform our economy into a quality jobs economy, and now is the time to start. Small business owners are newly stable, and according to the 2016 State of Small Business Report over half said they plan to hire new employees this year. We’re also starting to see positive outcomes from local governments and businesses that are boosting wages and benefits. What began as a protest by fast food employees in 2012 has led ten major cities and over a dozen states to adopt legislation or develop initiatives to increase the minimum wage.
Here in the Bay Area, the city of Emeryville implemented a $15-an-hour minimum wage. The city worked with small business owners to phase the increase in over time, and a predicted backlash never materialized. Workers making the minimum wage are reporting that, for the first time, they’re able to make ends meet and start to pay off debts. And there’s more money flowing locally. This story is playing out across almost every city that’s raised its minimum wage. A Goldman Sachs analysis of 13 states that raised their minimum wage found “the states where the minimum wage went up had faster employment growth than the states where the minimum wage remained low.”
The effects are starting to ripple upward, as positive experiments in higher wages are making the case for themselves more and more. Higher wages benefit business by increasing consumer purchasing power, reduce costly employee turnover, raise productivity, and improve product quality, customer satisfaction and company reputation.
Couple these common-sense learnings when a changing policy and business environment that favors B-Corps (a new kind of corporate entity allowed to make decisions based on social good in addition to shareholder good) and a generational shift that’s led to the creation of social enterprises (companies that make profit while also achieving social, cultural, community, and/or environmental benefits) and we can see an inflection point approaching.
[custom_headline type=”left” level=”h3″ looks_like=”h4″]Toward A Quality Jobs Economy[/custom_headline]
There’s no one cause behind rising inequality and the expanding number of working poor. Stagnant wages, rising housing and food costs, expensive and segregated education, policies that favor globalized corporations over local economies, neglected transportation infrastructure. It all adds up — At PCV we’re investing in a new quality jobs economy based around small and local businesses as a way to help turn the tide.
Our small business lending program is filling the gap for entrepreneurs who can’t access capital from a traditional bank or the Small Business Administration. Our free small business mentoring program brings top talent to Main Street businesses, keeping companies sustainable and empowering them to add jobs at 167% above the national average. And in the coming months, we’re planning to begin rolling out quality jobs research and initiatives to support our fellow CDFIs, the broader impact investing industry, government, and business owners’ efforts to create jobs that are good for workers and employers alike.
We have both a moral and an economic imperative to fuel social and economic mobility in this country. With support from community economic development leaders, PCV is working to help meet the needs of American workers today by empowering small businesses and driving more capital toward underserved communities.