Big Jobs in Small Businesses: Microenterprise Employment in Nebraska

Despite this developing consensus, many local, state and federal officials and initiatives concentrate on attracting and developing larger businesses, assuming those to be the engines of economic growth. In that context, we present an analysis of the importance of microenterprise in Nebraska and a comparison of the relative dependence different county types in the state have on microenterprises for jobs and employment.2

Methodology
Data compiled by the Association for Enterprise Opportunity determine microenterprise employment at the county level using the following basic steps:

• Determining the number of microenterprises in a county.
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• Determining the number of microenterprise employment. Since there is no data readily available at the county level on employment by establishment size, one must calculate the number of employees per microenterprise employer in the state and then multiply the average number of microenterprise employees by the number of microenterprises in each county.
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• The number of microbusiness employees is then compared to the total private non-farm employment in the county.
5 The result is the percentage of total private non-farm employment in the county from microbusinesses.

Nebraska counties are divided into categories according to the typology used in previous Center for Rural Affairs research reports.6 Table 1 describes this county typology.

Table 1. County Classification

There are 50 Rural Farm counties in the state, 10 Urban Farm Counties, 25 Nonfarm Counties and 8 Metropolitan Counties.7 The Rural Farm and Urban Farm counties are also combined as “agriculturally-based” counties. Therefore, 60 of the state’s 93 counties are classified as “agriculturally-based.” Microenterprise employment and total private non-farm employment were aggregated for each county type as well as for each county.

Results and Discussion
Microenterprise employment is a crucial part of the economy throughout Nebraska, comprising nearly 1 of every 6 private non-farm jobs in the state.

Rural counties in Nebraska have dramatically higher rates of microenterprise employment than do the more urban and metropolitan areas of the state. As Table 2 shows, Rural Farm, Urban Farm and agriculturally-based counties have microenterprise employment rates more than double the state’s Metropolitan counties.

Table 2. Microenterprise Employment by County Type

An examination of individual county rates of microenterprise employment demonstrates the same dichotomy – the 10 counties with the highest percentage of microenterprise employment are rural counties primarily in north-central and western areas of the state; the 10 counties with the lowest percentage of microenterprise employment are primarily the largest metropolitan counties in the state and/or home to the largest cities in the state, and generally follow the I-80 corridor through the state (with the exception of Dakota and Thurston counties). Appendix A provides the rate of microenterprise employment for each county (in terms of percentage of total county non-farm employment).

Table 3-A. Counties with Lowest Percentage of Microenterprise Employment

 Table 3-B. Counties with Highest Percentage of Microenterprise Employment

Policy Implications
With the amount of microenterprise employment in Nebraska, microenterprise and small business development must be a crucial part of the state’s economic development policy. Unfortunately, that is not currently the case. In comparison to other economic development programs, Nebraska provides meager resources for small businesses.8

The need for microenterprise development resources is most acute in rural Nebraska, the area of the state most dependent upon microenterprises for jobs and economic activity. Therefore, we offer the following recommendations:

• Nebraska must develop a comprehensive state rural development policy based on entrepreneurship and small and micro business development. It is time to face facts that this level of business is a primary source of jobs and economic activity in rural communities and deserves to be treated as such in public policy. Nebraska should develop initiatives to build its rural economy around entrepreneurship and small business development and expansion.
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• Increase funding for the Nebraska Microenterprise Development Act (NMDA). The NMDA provides grants to microenterprise organizations throughout the state, including the Center for Rural Affairs Rural Enterprise Assistance Project (REAP). Currently, the state appropriates $250,000 to the NMDA, divided about equally between urban and rural programs. Budget actions since 2001 have cut over half the funding for the NMDA. With the importance of microenterprise employment in the state, particularly in rural areas, it is time to again build up the funding for the only state microenterprise development program.
   
• Create and fund a Small Business Investment Tax Credit. Nebraska – given the importance of small business to the state economy – should adopt similar policy and create a Small Business Investment Tax Credit that would provide an individual and business income tax credit for the investment of funds in the creation and expansion of a small business. Missouri and Vermont are examples of states that currently have laws that provide tax credits for the creation and expansion of small businesses.
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Appendix A
Microenterprise Employment Rates by County (%)

Appendix B
Microenterprise Employment Rates by County Type (%)

Metropolitan Counties

Nonfarm Counties

Urban Farm Counties

Rural Farm Counties

Footnotes

1 W.K. Kellogg Foundation and the Corporation for Enterprise Development. 2003. Mapping Rural Entrepreneurship. W.K. Kellogg Foundation: Battle Creek, MI.

2 Data for this analysis is derived from “Microenterprise Employment Statistics” compiled by the Association of Enterprise Opportunity from federal sources. The methodology for this analysis was developed by James C. McConnon, Jr., Business and Economics Specialist and Associate Professor of Resource Economics and Policy at the University of Maine, and Thomas Allen, Associate Scientist at the University of Maine. For the purpose of this analysis, “microenterprise” and “microbusiness” are defined as a business with five or fewer employees and which requires $35,000 or less in start-up capital.

3 Sources: U.S. Census Bureau, Non-employer Statistics, 2001 (for self-employed); U.S. Department of Commerce, 2001 County Business Patterns (for businesses with 1 to 4 employees)

4 Source: U.S. Census Bureau, County Business Patterns, 2001.

5 Source: U.S. Department of Commerce, Bureau of Economic Analysis, Total Full-Time and Part-Time Employment by Industry, 2001.

6 Those reports are Trampled Dreams: The Neglected Economy of the Rural Great Plains (2000) and Swept Away: Chronic Hardship and Fresh Promise on the Rural Great Plains (2003).

7 Since the release of Trampled Dreams and Swept Away, the U.S. Census Bureau has added two Metropolitan counties in Nebraska – Dixon County (formerly a Rural Farm county) and Saunders County (formerly an Urban Farm county). We have included them as Metropolitan counties for this analysis.

8 For example, we found that in 2001, the total amount of tax benefits (income, sales and property taxes) provided LB 775 beneficiaries was $160,496,673. Compared to the state resources currently provided small business and entrepreneurial development ─ $561,250 ─ state economic policy represents a ratio of 286:1 in terms of support of large corporate business versus small business. In other words, for every dollar of support for small business development, $286 supports large corporate business development. Balancing The Scales of Prosperity: Bringing Nebraska’s Economic Development Policy Into Balance, Center for Rural Affairs, 2002.

9 See, for example, “The Kansas Economic Growth Act,” that contains the Kansas Entrepreneurship Initiative that contains a series of initiatives to develop, assist and nurture microenterprises and small businesses across Kansas.

10 Missouri Revised Statutes, Chapter 135, Section 135.403; Vermont Statutes Annotated, Title 32, Section 5930g.

Contact Jon Bailey, jonb@cfra.org from our Rural Research and Analysis Program for more information.