Small Businesses Drive Job Creation in Big Cities and Their Inner Cities

by Ted Archer and Howard Wial

In a new report, the Initiative for a Competitive Inner City (ICIC) shows how important small businesses are as job creators in 10 of America’s largest cities and their under-resourced inner cities.  The report, which updates and expands ICIC’s 2016 report  on this subject, suggests that local efforts to strengthen and grow small businesses can have at least as great a job payoff as efforts to attract and retain large companies.

The research was conducted with the support of JPMorgan Chase through Small Business Forward, a five-year, $150 million initiative connecting underserved small businesses with the capital, targeted assistance, and support networks to help them grow faster, create jobs, and strengthen local economies.

ICIC’s report examines small business job creation in 10 cities: Chicago, Dallas, Detroit, Houston, Los Angeles, Miami, New York City, San Francisco/Oakland, Seattle, and Washington, D.C.  Its major findings on small businesses and job growth in these cities are:

In all 10 cities, small businesses — those with no more than 250 employees — make up at least 99 percent of all businesses in the city. However, the percentage of jobs created by small businesses varies across the cities ICIC profiled, ranging from 51 percent in New York City to 72 percent in San Francisco/Oakland.

In all 10 cities, small businesses create most of the jobs:

• 51 percent in New York City.
• 60 percent in Detroit and Seattle.
• 62 percent in Chicago, Houston, and Washington, D.C.
• 63 percent in Dallas.
• 70 percent in Los Angeles.
• 71 percent in Miami
• 72 percent in San Francisco/Oakland.

Although “micro” businesses (those with one to four employees) account for the largest share of businesses in the cities, medium-sized businesses (those with five to 249 employees) are creating more jobs.

In seven of the 10 cities, small business jobs are even more important in the inner city.In those seven cities, small businesses create a greater share of jobs in the inner city than in the city overall:

• 68 percent in New York City.
• 69 percent in Detroit.
• 96 percent in Seattle.
• 70 percent in Chicago.
• 73 percent in Houston.
• 70 percent in Washington, D.C.
• 74 percent in Miami.

In Los Angeles, small businesses’ share of all jobs (70 percent) is the same in the inner city as in the city as a whole.  In the remaining two cities, it is slightly lower in the inner city: 60 percent in Dallas and 71 percent in San Francisco/Oakland.

Small businesses can be important in creating opportunities to reduce inner-city unemployment. In the 10 cities profiled in ICIC’s report, a modest increase in the number of small-business jobs could create enough jobs for all unemployed inner-city residents. In nine of the 10 cities, the necessary job growth is equivalent to only about one additional employee per small business.  Of course, this growth will not always come easily for small businesses, many of which have fewer than five employees.  With its higher unemployment rate, Detroit would also require more substantial small-business job growth, just over three jobs per small business.

Many local governments and economic development organizations continue to think about job creation primarily in terms of attracting and retaining large companies.  ICIC’s report strongly suggests that they should shift their priorities to devote at last as much effort to strengthening and growing small businesses.