Economic analysis reveals importance of small business

What constitutes a small business? How important is small business in Larimer and Weld Counties? Has its role been changing in our economy?

Many questions and, we’re sure, many different opinions. We’ll present some data and let you use your own definition of what constitutes small

business. Where necessary, we’ll assume small business is defined by fewer than 50 employees.

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The data we’ll use is from the 1991 County Business Patterns, matching the year of the impact model we are using.

In Larimer County, 96.3 percent of establishments had fewer than 50 employees, compared with 95.9 percent in Weld County. The two counties have

almost identical distributions, with Weld County figures approximately one-half as large as Larimer County. These employment figures suggest that,

indeed, small businesses do constitute the majority of the Larimer-Weld economy.

These figures do not include home-based or other businesses that are not required to report employees under the Federal Insurance Contributions Act,

i.e., businesses without a payroll.

Estimates based on information derived from the Internal Revenue Service suggests that non-FICA businesses are a very significant part of the U.S.

economy. Link Resources estimates that more than 41 million Americans work either part-time or full-time from their homes. Research performed in

the Economics Department at the University of Northern Colorado estimates that less than 25 percent of agriculturally based businesses in Weld

County report payroll data under FICA. Thus, the small-business economy is likely much larger than reported here using County Business Patterns

data.

For a moment, let’s look at large industries in the Larimer-Weld Impact Model. Almost 50 percent of all employment is dependent on these large

business when we include the sectors that support them (multiplier effects). Thus, if only 4 percent of establishments are large businesses, many small

firms support them and their employees.

What about imports and exports? Small businesses export 43 percent of the total value of all exports. Thus, large businesses are much more likely to

be major exporters. Small businesses import 50 percent of the total value of all imported items, equally sharing total imports with a significantly fewer

number of large firms.

Between 1988 and 1993, the number of employees in FICA-reporting establishments grew 38.1 percent in Larimer County and 25.4 percent in Weld

County; total annual payrolls grew 59.7 percent in Larimer County and 38.1 percent in Weld County; and the number of establishments grew 16.6

percent in Larimer County and 12.6 percent in Weld County.

Larimer County was about twice as big and was growing about 50 percent faster during this period.

However, if we look at two-digit Standard Industrial Classification sectors, significant differences exist between Larimer and Weld Counties.

Establishments in Weld County are 29 percent larger than those in Larimer County in terms of average number of employees per establishment. The

average establishment in Weld County is larger than its counterpart in Larimer County in all two-digit sectors except mining and retail trade.

From 1988 to 1993, the average establishment in Weld County went from 12.69 to 14.14 employees, up 11.4 percent. The average establishment in

Larimer County went from 9.79 to 11.6 employees, up 18.5 percent. Weld County has larger establishments, but Larimer County is catching up.

So, as we can see, small businesses are very important in Weld and Larimer Counties, and their importance is growing. Their existence, however, is

very dependent on the large businesses they support and whose employees provide a market for their goods and services.

The export-base theory of economic growth really does work. Small businesses could not survive without the large businesses. Large businesses

would have to import much more if it weren’t for small businesses, and employees would have to purchase goods and services elsewhere.

And, finally, the region would not grow and prosper if it weren’t for the exports from all businesses, including tourism exports.

John Green is a consultant and professor of economics at the University of Northern Colorado in Greeley. Eric Siverts is president of Siverts and

Associates in Fort Collins.