Factors Affecting Spatial Variation of Microenterprises in the Rural United States

IntroductionWith record level persistently high general unemployment rate, dwindling manufacturing employment and major employers downsizing and offshoring, microenterprises are gaining attention in rural development policy in the United States. It has been argued that micro businesses lead to creation of employment, alleviation of poverty, movement of people from welfare to work, decrease in population loss in communities, improvement of farm and nonfarm earnings, and increase women employment (Miller, 1991; Henderson, 2002; Deller & McConnon, 2009; Rupasingha & Goetz, 2011). Despite these claims, anecdotal evidence, and a growing literature on the economic importance of small businesses, less is known about factors associated with the formation and growth of these firms in the rural United States. Microenterprises are the smallest of small businesses. For the purpose of this research, we adopt the definition by the Aspen Institute ([AI], 2000) and the Association for Enterprise Opportunity that a microenterprise is a sole proprietorship, partnership or family business that has fewer than five employees including nonemployers.1The simplest conclusion that can be drawn from existing studies (described below) on microenterprises in the U.S. is that they do play an important role in local economic performance. The creation and development of sustainable local businesses that generate jobs and create economic opportunities are vital for rural America in the wake of declining farm income and employment, manufacturing relocation, and globalization. However, merely providing a few ad hoc programs and nominal support will not lead to improving the viability of these businesses in a locality and subsequent economic growth and development as a result. From a policy viewpoint, it is important to understand individual and community level factors that may be associated with successful microenterprises. The objective of the present study is to investigate community level factors that are associated with microenterprises in rural counties in the U.S. or in other words to answer the question of why some rural counties have a higher percent of microenterprises compared to some others.Based on our definition of microenterprises, data show that between 2002 and 2007 an increasing number of rural county residents has chosen microenterprise as a source of their income (Figure 1). While it is true that the number has declined during the Great Recession, it has begun to go up in 2010, mainly due to the increase in nonemployer numbers. Microenterprises for rural counties in the U.S. have expanded from 3.62 million in 2002 to 4.13 million in 2007 representing a 14% increase. A vast majority (80-85 percent) of these numbers are nonemployers. Between 2002 and 2007, employer-microenterprises have increased from 668,310 to 682,362. The number of employer-microenterprises has decreased during the Great Recession (664,588 in 2008 to 655,316 in 2009) and not recovered by 2010 (651,809, latest available data point). The number of nonemployer businesses also showed a similar trend during the Great Recession (a decrease from 3.35 million in 2008 to 3.25 million in 2009) but seems to be on a recovery path by 2010 (3.40 million). While the growth in microenterprises in rural areas has been steady until 2007, this growth has been uneven across the rural U.S. Figures 2&3 show that some rural counties have a significantly higher rate of microenterprises than others and therefore they may enjoy a more conducive environment for this type of business. While the geographic variation of nonemployer businesses in rural areas seems to be somewhat uniform (Figure 2), higher rates of employer businesses can be seen more in the north central and northwest region, compared to the rest of the county (Figure 3). This geographic variation in the proportion of microenterprises in rural counties is the focus of this paper as it makes an effort to understand the factors associated with this variation. …