Cities can't bank on small businesses for stable economic partnerships
Cities can't bank on small businesses for stable economic partnerships
- October 15, 2009
- Study co-authored by UCI economist David Neumark finds corporate headquarters and chain stores are more stable economic partners for cities
Locally owned small businesses don't insulate communities from layoffs and closures
in bad economic times. Rather, corporate headquarters do the most to protect cities
from employment reductions, reports a new study co-authored by a UC Irvine economist.
This debunks a popular argument that owners of "mom and pop" stores are less likely
to lay off employees, relocate or close their businesses when the economy sours, said
David Neumark, UCI economics professor and a Bren Fellow at the Public Policy Institute
of California. The findings validate the efforts of many local governments to attract
and retain corporate headquarters, he said.
"People may prefer funky coffee shops downtown, but corporate headquarters and in
some cases small chains may provide more stable jobs to the community," Neumark said.
The study, co-authored by Jed Kolko, associate director and research fellow at the
institute, was published online recently in the Journal of Urban Economics.
Using a national database, researchers examined business patterns over 14 years. Businesses
were classified as standalone, parts of larger companies (such as chain restaurants
and factories), or corporate headquarters.
Two types of economic shocks were identified: those affecting many industries in a
particular region and nationwide jolts specific to an industry. Researchers measured
how the businesses adjusted their employment levels in response to the shocks. They
then looked at how responses varied among the different kinds of businesses.
The result: Corporate offices were the most stable in terms of avoiding layoffs and
closures, and smaller, locally owned chains provided some stability. In contrast,
job losses caused by industry downturns were 60 percent greater for standalone businesses
than for stores or factories reporting to headquarters in another city. Cuts were
half as large at corporate headquarters as at non-locally owned stores or factories.
The study was funded by a grant from the David A. Coulter Family Foundation to the
Public Policy Institute of California. Read the full report online at http://www.economics.uci.edu/~dneumark/Local_ownership_final.pdf.
--Laura Rico, University Communications
--homepage photo courtesy of Daniel A. Anderson, University Communications
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