Economic development for job growth? Size matters -- but not in the way you think

A lot of economic development activities today assumes that bigger is better. That's why ED departments spend millions of dollars at trade shows trying to lure large firms to their cities, elected officials approve tax abatements for big projects, and redevelopment planners try to connect and clear small lots to make room for big companies.

But smaller may actually be better when it comes to economic development that generates jobs.  A team of economists studying metropolitan areas throughout the United States between 1977 and 2000 found that areas with more small firms tend to have more job growth.  "A 10% increase in the number of firms per worker in 1977 at the city level correlates with a 9% increase in employment growth between 1977 and 2000," write Edward Glaeser, William Kerr and Giacomo Ponzetto in their article, "Clusters of Entrepreneurship."  Other key ideas and findings:

*Having a greater percentage of large firms actually reduces entrepreneurship.
*Low costs help increase entrepreneurship, but a region's amenities play a big role in the creation of firms.
*Entrepreneurs are more likely to be from the area where they create their business, and "local entrepreneurs operate stronger businesses." (p. 151)
*Places with a greater share of college educated workers tend to have more entrepreneurs.
*Entrepreneurs are attracted to places with a larger share of small businesses.
*Start-ups and small businesses are more likely to be labor-intensive than capital-intensive.  That is, they are likely to have more workers per square foot.

There's not much practical advice in their article, but there are several implications for our fields.  Planners and economic development professionals should:

• Create a more welcoming climate for entrepreneurs by promoting business assistance and micro-entrepreneurship programs and preserving clusters of small spaces for start-ups.  In other words, think of downtown development with one-stop business centers.  "Small, decentralized suppliers and customers are more helpful or important for new startups than for expansions of established firms." (p. 161)
• Support initiatives that encourage networking among business people, and encourage leaders of business associations and clubs to be welcoming to new entrepreneurs from outside the community.  The research indicates the power of connections in building successful enterprises.  People who grow up in an area are more likely to know and have friendships with others in the community, making it easier for them to engage in partnerships.  But some places can become insular, especially if a new group of residents is seen as a threat to existing residents.  In other words, if you see a growing population of _______, and nobody from that group is in the local business association, it's a problem.
• Focus on the quality of place.  The research supports the idea that the more desirable a place is to live, work or play in, the more high-value workers and entrepreneurs it attracts.  In other words, a nice waterfront park might do more to generate jobs than a tax abatement. 
• Promote workforce development strategies that increase the number and percentage of college-educated or career-ready people in a community.  Knowledge economy businesses need skilled workers the same way farmers need fertile land.  Workforce development and quality of place solutions should go hand-in-hand.  People who are more skilled and educated have more choices, and you want them to choose to stay in your community.

--Leonardo Vazquez, AICP/PP

The Bloustein Online Continuing Education Program offers two Professional Certificate programs in economic development:  Cultural Planning and Development, and Economic and Community Development.  The Leading Institute's Leading from the Middle program can help you be more persuasive and effective in working with stakeholders and officials to promote job-generating economic development.  Learn more and find out about upcoming courses.