“Since 2000, if it wasn’t for the growth we’ve seen in self-employment, the state would have actually lost jobs.”
Ohio State University Swank
Professor of Rural-Urban Policy
COLUMBUS — Ohio’s economy could get a much-needed jump-start if the state focused more on helping small businesses and self-employed workers succeed, according to a new Ohio State University policy brief.
But policymakers need to avoid methods that could limit economic gains, the authors said.
The January 2008 report, Growth and Change: Does Enhancing Ohio’s Small Businesses and Entrepreneurs Provide the Key to Growth? was issued by Ohio State University’s Swank Program in Rural-Urban Policy and the Exurban Change Project, both housed within the College of Food, Agricultural, and Environmental Sciences.
Pros and cons
The brief examines the strengths and weaknesses of Ohio’s self-employed workforce and entrepreneurial climate over time.
The report comes just as more attention is turning to signs of an economic downturn. In the face of anemic job growth, Ohio’s unemployment rate increased to 6 percent in December, up from 5.6 percent in November.
Boosting the success of the state’s self-employed could be a key factor in a turnaround, said the report’s lead author Mark Partridge, the college’s Swank Professor of Rural-Urban Policy.
Self-employment has been a significant aspect in Ohio’s job growth for decades, Partridge said, even more so in recent years.
“Since 2000, if it wasn’t for the growth we’ve seen in self-employment, the state would have actually lost jobs,” Partridge said.
“Our job growth in the first part of this decade would have been zero.”
In rural areas, if trends continue, the number of self-employed workers will soon exceed the number of manufacturing workers, he said.
However, self-employment doesn’t mean what it used to. The report reveals that earnings of self-employed Ohioans have drastically declined over the years.
Statewide, self-employed workers in 1969 earned slightly less than the average wage-and-salary worker, but by 2005, those earnings fell to just 65 percent of the average wage and salary worker.
The statistics are even more stark in rural areas: In 1969, rural nonfarm self-employed workers earned 4 percent more than a typical wage-and-salary worker, but in 2005, they earned only half of the typical wage-and-salary worker’s income.
“We don’t know how many of these self-employed workers are just working part-time, or earning some money on the side,” Partridge said.
But the trends are clear on the growing importance of self-employment in Ohio. Unfortunately, Partridge sees indicators that many of the state’s newly self-employed are motivated more by desperation — from a recent job loss, for example — than an entrepreneurial spirit.
“It’s a survival strategy,” said co-author Jill Clark, program manager of the Exurban Change Project.
In comparing indicators of innovation and creativity, Ohio lags behind national averages. Despite having the seventh-largest population among states, Ohio ranks 29 in the number of patents issued; 32nd in the value of initial public stock offerings by companies; 35th in venture capital activity; 24th in the number of scientists and engineers in the workforce; and 19th in industry and investment in research and development.
“Ohio is just not performing very well,” Partridge said. “If we want more creative, innovative small businesses, we need to provide an environment to support that.”
Clark said the state needs to recognize its strengths, citing the state’s universities as well as institutions such as the Cleveland Clinic and Battelle.
In addition, she said, research shows that existing businesses create 60 percent to 90 percent of all new jobs. Programs to help both the self-employed and the state’s small businesses could have added value, she said.
In one of its policy recommendations, the researchers urge caution about a common method communities use to try to boost economic activity: providing tax incentives and grants to local businesses.
Unless those incentives have a broad-based community impact, they tend to provide benefits only to the grantee, while the remaining businesses and residents pick up the remaining tax burden.
“A better alternative would be to keep all taxes as low as possible to still provide the services that are needed, and treat all businesses equally,” Partridge said.
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