Cities can't bank on small businesses for stable economic partnerships

Oct 15, 2009
Cities can't bank on small businesses for stable economic partnerships
Small independent businesses may be coveted in quaint downtowns, but they aren't always the stable economic partners that cities prize. Photo by Daniel A. Anderson

(PhysOrg.com) -- 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 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 here: www.economics.uci.edu/~dneumar… _ownership_final.pdf

Provided by UC Irvine

Explore further: African-American homeownership increasingly less stable and more risky

add to favorites email to friend print save as pdf

Related Stories

Expert says layoffs could worsen economic woes

Nov 24, 2008

Widespread layoffs that stem corporate financial losses but leave workers out in the cold would deepen the looming recession that sparked them, a University of Illinois labor expert warns.

Study links gridlock to slow job growth

Jan 26, 2009

(PhysOrg.com) -- Commuters well versed in the physical and psychological tolls of traffic congestion can now add an economic effect to the list. A new UC Irvine study found that places with sluggish commutes ...

Family firms better than other businesses

Jun 21, 2006

A Texas A&M University study has become one of the first to examine the competitiveness and stability of family businesses and finds both factors good.

Recommended for you

Smarter ads for smartphones: When they do and don't work

Jul 15, 2014

Brands spent $8.4 billion on mobile advertising in 2013, and that number is expected to quadruple to $36 billion by 2017, according to eMarketer. But do mobile display ads—those tiny banner ads that pop ...

Murders deflate local house prices

Jul 15, 2014

When Ellen Lin and Derek Kwok discovered a vicious murder had been committed in the North Ryde house they were about to buy, they did not want to go through with the deal.

User comments : 0