Swank Program Research Finds that Ohio’s Small Business and Entrepreneurship Environment Lacks Dynamism

Oct. 19, 2016

The C. William Swank Program in Rural-Urban Policy, which is overseen by AEDE’s Swank-Chair, Professor Mark Partridge, recently examined small business and entrepreneurship growth in Ohio through its policy brief series.

The researchers, which include Partridge and doctoral students Mark Rembert and Bo Feng, found that Ohio’s small business and new business environment lacked what they defined as “dynamism” when compared to the growth of small business enterprises across the U.S. as a whole. They measure economic dynamism as the rate of job creation and job destruction through an analysis of data from the national Quarterly Workforce Indicators (QWI).

Though small businesses with fewer than 50 employees accounted for more than a quarter of total employment in Ohio in 2015 and nearly one in ten jobs were in businesses five years old and younger, Ohio ranked among the states with the smallest share of employment in small business and new businesses when state-by-state data was analyzed.

“Our analysis suggests that just in 2014 alone, if Ohio small businesses had grown at the national average, there would have been 8,000 more net jobs created,” said Rembert.

Small businesses are crucial to the growth of any economy, and as the authors note, small businesses and entrepreneurs play a critical role in the dynamic evolution of the economy through job creation and job destruction. Small business creation also helps foster an entrepreneurial climate in which citizens and governments have a better appreciation for the needs of businesses and act accordingly, the authors state.

The researchers point out that small business and new business development is like a lottery. While many small enterprises won’t be successful, if there are enough small business start-ups, there is a greater chance that one will be successful and create jobs and wealth. A greater intensity of start-ups in a community is accompanied by a culture that celebrates entrepreneurship and better informs government as to how to create a climate to foster small business success, the authors write in the brief.

The researchers do offer policymakers insight into possible explanations for small business and entrepreneurship stagnation in Ohio, as well as recommendations on improving the state’s small business environment. They point to Ohio’s slow population growth and net out-migration as factors impacting entrepreneurial activity.

“A growing body of research on small business and entrepreneurial success suggests that the negative effect of low population growth has been compounded by Ohio’s historic reliance, and present day emphasis, on sectors like manufacturing with a high concentration of large employers which have been shown to crowd out and depress small business and entrepreneurial activity,” Rembert said.

In regards to a way forward, the economists offer three policy recommendations aimed at increasing the vitality of Ohio’s small business and entrepreneurial sectors.

First, the state should consider expanding programs which provide young people with entrepreneurial experiences, they write.

“Growing up working in a small business as a young person has been shown to translate into entrepreneurial success as an adult,” Rembert reflects.

Second, they note that the state’s economic development system should increase its understanding and awareness of the tradeoffs inherent in its policies. For example, they note, currently economic development programs in Ohio, like most states, favor large firms, which often inhibits the growth of smaller entrepreneurial enterprises. They look at states such as Missouri and Connecticut as best practice examples as their governments regularly assess economic development programs in an effort to account for indirect costs from programs that support large firms that may impact the small business community.

Finally, the authors recommend that Ohio policymakers undertake a broader economic development strategy focused specifically on tactics aimed at growing the population to create new opportunities for small businesses and entrepreneurs.

“While policymakers typically assume that people follow jobs, the economics literature on migration has shown that amenities drive much of the interregional migration in the U.S.,” notes Rembert.  “Thus, economic development policies aimed at increasing the population should focus as much on investing in amenities and quality of life in Ohio as they do on industrial attraction.”

Click here to read the full brief, titled “Small Business and Entrepreneurship in Ohio: Promoting Prosperity by Growing from Within.”


Photo Credit: The Ohio State University