Microenterprises can play an important role in economic growth: Milken Institute

Microenterprises are the smallest of small businesses – they employ less than 10 people and typically earn less than $ 250,000 per year. These companies have been largely left out of the conversation regarding the United States’ economic recovery after the COVID-19 pandemic. However, the Milken Institute and web hosting company GoDaddy (GDDY) have joined forces for a new analysis highlighting the vital role of micro-businesses in the country’s economic growth and recovery.

The new report is based on the Milken Institute’s “Best Performing Cities Index”. It uses data from GoDaddy’s Venture Forward Initiative, a multi-year research effort to quantify the effect of microenterprises on local economies.

“We wanted to understand beyond the high-tech economy and big business, what is happening in terms of people seeking new types of economic opportunities,” said Aaron Melaas, associate director of the Center for Regional Economics at Milken Institute. “I think during the pandemic it had become very clear that the key issues that we had identified and that the Venture Forward team identified, such as broadband access, were at the heart of the capacity of people to pursue economic prosperity. However, micro-enterprises still tended to be somehow outside most political discussions, ”he added.

The company recommends that these companies take a more prominent position in local policy discussions as metropolitan areas recover from the COVID-19 pandemic. According to the Federal Reserve economist, during the COVID-19 pandemic, 200,000 small businesses closed during the pandemic compared to the previous year. Despite the overall decline in small businesses, Venture Forward data shows an additional 2.8 million micro-businesses opened in 2020 than in 2019.

Robert Brown, senior director of customer insight and analytics at GoDaddy, says Yahoo Finance’s micro-businesses tend to generate disproportionate economic effects.

“We know, for example, that adding one more microenterprise per 100 people in an average community will increase household income by $ 500. We know, for example, that for every entrepreneur who starts a micro-business, two jobs end up being created in that community, ”he said.

“It might not be directly because of this person starting a micro business, but what ends up happening is you get a more solid, connected community of people who can engage. with each other in different ways… By having these micro businesses and having them online and connected to each other, that sense of community is manifested in these kinds of numbers that we have seen so far, ”a he added.

The report also points out that US metropolitan areas with strong job creation can support the growth of microenterprises as a complementary form of economic opportunity. The analysis argues that cities with strong microenterprise ecosystems can help compensate for the lack of high tech dynamism by promoting access to more opportunities in the digital economy.

According to Brown, the National Bureau of Economic Research has shown a massive increase in the growth of micro-businesses in black neighborhoods.

“We saw the same thing. In these predominantly black postal codes, there has been a massive increase in this micro-business activity as a way to mitigate the effects of people losing their jobs or businesses, ”Brown said.

“What we’ve seen historically is that these majority black zip codes have tracked non-majority black zip codes by about 80% in terms of micro-businesses during the pre-pandemic period. However, by the time of the third stimulus and in March 2021, we see that the majority of black postal codes are in fact producing non-majority black postal codes in terms of micro-business startups, ”Brown added.

Reggie Wade is a writer for Yahoo Finance. Follow him on Twitter at @ReggieWade.

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