State of the Inner City Economies: 

Small Businesses in the Inner City

 Initiative for a Competitive Inner City (ICIC)

2005. [27] pages Boston, MA 

under contract no. SBAHQ-03-M-0565

This report was developed under a contract with the Small Business Administration, Office of Advocacy, and contains information and 

analysis that was reviewed and edited by officials of the Office of Advocacy. However, the final conclusions of the report do not necessarily reflect the views of the Office of Advocacy.

Note

This paper is the result of a larger project undertaken 

by the Initiative for a Competitive Inner City (ICIC). 

Other funders for this project include the U.S. 

Economic Development Administration, the John 

D. and Catherine T. MacArthur Foundation, and the 

Greater Kansas City Community Foundation. 

Purpose

Inner city neighborhoods are often found in the economic heart of metropolitan areas. Despite their central location, they are rarely considered competitive 

locations for developing unique markets and creating 

high-wage jobs. Outdated perceptions continue to 

obscure their positive realities. Inner city economies 

are larger and more active than is generally understood, especially among the small businesses that 

employ the vast majority of inner city workers.

The State of the Inner City Economies (SOICE) 

project seeks to document the impact that small 

establishments have in the inner city. The goal of 

this analysis is to present the business potential of 

inner cities.

Overall Findings

Inner city businesses are similar to businesses located 

in the rest of the metropolitan statistical area (MSA), 

exhibiting similar startup and bankruptcy rates. Small 

businesses are the greatest source of net new employment in inner cities – comprising more than 99 percent 

of establishments and 80 percent of total employment.

Highlights

• America’s inner cities are home to over 814,000 

private employer establishments employing just 

less than 9 million people (8 percent of U.S. private 

employment), a figure that grew 1 percent between 

1995 and 2002. This figure lagged behind the job 

growth rate for the rest of the MSA, which was 1.9 

percent over the same time period.

• Inner city residents hold only 22 percent of inner 

city jobs, while commuters hold 78 percent. This fact 

helps to explain why higher-wage inner city jobs do not 

correspond to higher median household income levels 

for many inner city residents. Wage growth between 

the inner city and the MSA has been competitive.

• About 5 percent of establishments with greater than 

$2.5 million in revenues are located in the inner city.

• Ten inner cities experienced faster small business 

job growth than their surrounding MSA’s from 1995 

to 2002. These cities were: Jersey City, NJ; Tulsa, 

OK; Tampa, FL; Oakland, CA; St. Petersburg, FL; 

San Jose, CA; Mobile, AL; Portland, OR; Santa Ana, 

CA; and Augusta, GA. In addition, 51 inner cities 

gained small business jobs overall.

• Micro establishments in inner cities with under 

20 employees showed an overall net job decrease of 

75,000 jobs between 1995 and 2002. It is important to note that the SOICE project uses a static and 

not dynamic analysis of establishments; these micro 

establishments could have “graduated” beyond the 20 

employee threshold. 

• Service jobs dominated small business job growth 

in both inner cities and their surrounding regions.

• The most populous cities experienced more widespread employment growth than smaller cities. Job 

growth varied significantly by region, with larger 

growth in the West and the South outpacing smaller 

gains in the Northeast and Midwest.

October 2005 No. 260
Scope and Methodology

The SOICE project utilizes comprehensive data sets 

such as the 2000 U.S. Census returns and ZIP Code 

Business Patterns, a compilation of national employment and establishment information at the ZIP code 

level. By combining these data sets, SOICE created 

profiles for the inner city economies of the nation’s 

100 largest urban areas. Analyzing these profiles 

reveals the drivers of inner city competitiveness and 

job growth, and illuminates trends in inner city populations and business activity on a national scale. 

Inner cities are core urban areas that are economically distressed. For the purposes of this study, inner 

city areas are primarily defined as census tracts with 

a 20 percent or greater poverty rate, or those with 50 

percent greater unemployment or poverty, or half the 

median income, of the surrounding MSA. The footprint of the inner city emerges by grouping contiguous 

census tracts that satisfy either of these two criteria and 

contain at least 5 percent of the city’s total population 

(3 percent in the four largest cities). The 20 percent 

poverty threshold was selected based upon literature 

from the field that defines “distressed areas” or “high 

poverty tracts” at the 20 percent or more level. Census 

tracts considered part of the central business district 

(CBD) were included in the study if they met the inner 

city criteria because excluding these areas would leave 

out many distressed tracts where people live.

To define inner city boundaries, SOICE analyzed 

both 1990 and 2000 U.S. Census data. This data 

was also used to specify the number of residents living in poverty. Despite documented issues of the 

under-reporting of residents and income, census data 

remains the best available source of information on 

U.S. residents. 

Two points about the data utilized in the SOICE 

project should be noted. First, establishment-level 

business data are being analyzed. This contrasts with 

other Office of Advocacy statistics from the U.S. 

Census Bureau that explore firm-level data. Second, 

SOICE pursues a "static evaluation" of establishment 

and employment trends from year to year.

This report was peer reviewed consistent with 

Advocacy’s data quality guidelines. More information on this process can be obtained by contacting the 

Director of Economic Research at advocacy@sba.gov

or (202) 205-6533.

Ordering Information

The full text of this report and summaries of other 

studies performed under contract with the U.S. Small 

Business Administration’s Office of Advocacy are 

available on the Internet at www.sba.gov/advo/research. 

Copies are available for purchase from:

National Technical Information Service

5285 Port Royal Road

Springfield, VA 22161

(800) 553-6847 or (703)605-6000

TDD: (703) 487-4639

www.ntis.gov

Order number: PB2005-106459

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