New Analysis Finds Small Businesses Are Powering Establishment Growth, But Medium and Large Firms Contribute More To Job Gains
Self-Employed Workers In The Inland Empire Growing Nearly as Fast as Wage and Salary Workers
August 22, 2019— RIVERSIDE, Calif. (www.ucr.edu) — A new study that looks at the size of businesses in the Inland Empire is shedding light on growth trends occurring in small businesses and among self-employed workers in the region. The analysis, released today by the UC Riverside School of Business Center for Economic Forecasting and Development, examines establishments of all sizes and evaluates which contribute the most to local economic growth, with some surprising results.
The study reveals that although Very Small (1-4 employees) and Small (5-19 employees) businesses account for over 86% of all establishment growth in the region, these businesses are responsible for just 17.7% of job gains. The analysis looks at growth from 2011 through 2016, the most recent data available.
“While small businesses are vital, they’re often perceived as major contributors to overall economic expansion,” said Robert Kleinhenz Executive Director of Research at the Center for Economic Forecasting. “In the Inland Empire, they largely drive establishment growth but they don’t contribute to employment nearly as much as medium and larger sized businesses do.” Kleinhenz says this kind of granular understanding is critical in order to craft public policies and economic development strategies that work effectively with what’s happening on the ground in the local economy.
Overall, there were 71,807 business establishments in the Inland Empire in 2016, an 11.1% increase over 2011, which is a testament to the robustness of the regional economy’s recovery from the Great Recession. And although similar to the state as a whole, the mix of businesses in the Inland Empire differs somewhat with relatively lower concentrations of Very Small businesses but higher concentrations of Small and Medium (20-99 employees) sized businesses. This same pattern applies to the growth of establishments, with the number of Small and Medium sized businesses increasing more in the region than in the state and the number of Very Small Businesses lagging the state over the study period.
The analysis says these and other nuances are worth exploring – and factoring into local economic development programs – as they may reveal regional conditions that make these businesses more conducive to the Inland Empire.
Other key findings that may inform future growth and development strategies include:
- Small But Numerous: Nearly 85% of all business establishments in the Inland Empire are Very Small or Small.
- Industry (also) Matters: Five industries account for 57% of all Very Small and Small businesses in the Inland Empire: Retail Trade, Health Care, Construction, Professional/Scientific/Technical Services, Real Estate Rental/Leasing, and Transportation/Warehousing.
- How Many Self-Employed?: There were 308,401 self-employed workers in the Inland Empire in 2016, equivalent to slightly less than one-quarter of all wage and salary workers in the region.
- Self-Employed Numbers Keeping Up: The number of self-employed workers in the Inland Empire jumped 9% from 2011 to 2016, only slightly behind the growth rate of businesses with wage and salary workers (11.1%).
- Uber/Lyft Type Services Partially Driving Self-Employed Numbers: The Transportation and Warehousing industry experienced a whopping 70% jump in the number of self-employed workers from 2011 to 2016 – partly due to increases in the region’s goods movement industries but also driven in part by on-demand shared ride services such as Uber and Lyft.
- Small Works Better: In general, industries that experienced the largest increases in small business establishments and self-employed workers tend to favor smaller firm size due to low entry costs, making it easier to start up a business, or because the type of business itself is difficult to operate at a large scale.
The complete analysis, Small Businesses and the Self-Employed in the Inland Empire, is available here.
The UC Riverside School of Business Center for Economic Forecasting and Development is the first major university forecasting center in Inland Southern California. The Center produces economic forecasting and policy research focused on the region, state, and nation. Learn more at UCREconomicForecast.org.
Inland Empire Small Businesses Remain Bullish Despite Economy
New Bank of America research suggests three significant trends to prepare for during remainder of the year
By Chris Porro, SVP Small Business Banking Manager, Bank of America Inland Empire
Despite economic headwinds such as inflation and higher interest rates, small business owners are confident, with 76% feeling well-positioned for a strong year ahead, according to new Bank of America research. And nearly half of small business owners nationwide are looking to expand their business this year.
In the Inland Empire small businesses are growing at a rate of 4.75% each year and top line revenues continue to grow for our clients. However, the research also indicates that entrepreneurs are monitoring a handful of challenges to their business plans in 2023, expressing the most concern around inflation, a potential recession and labor challenges. This is reflected by our small business clients who are reducing expenses to maintain the same margins due to inflation, and are much more discerning and selective when considering major purchases like equipment or commercial real estate.
Despite all this, the majority (65%) expect their revenue to increase in the next 12 months. Additionally, 82% of entrepreneurs say they intend to obtain funding for their business in the year ahead, up from 70% last spring, and 34% of business owners plan to hire this year, up from 26% last spring.
As the nation’s number one small business and SBA lender, Bank of America has extended nearly $460 million to small businesses across the Inland Empire. But our small business bankers do so much more than just loan capital, by working closely with business owners to help streamline costs, grow revenues and expedite payments, among other financial needs.
So, what do business owners need to keep in mind for 2023? Here are three of the most significant insights, trends, and obstacles businesses should be prepared to face this year:
Labor Concerns and Challenges
Fifty-two percent of business owners say labor shortages are impacting their business, and as a result, many entrepreneurs are working more hours, experiencing issues filling job openings and are modifying their hours of operation. Twenty-one percent of business owners also reported customer losses due to labor issues.
To combat these challenges, business owners are adopting new strategies to retain and attract talent. Over the past 12 months, 51% of business owners implemented additional perks and benefits, including higher base pay for new employees, allowing remote or hybrid work, introducing new employee training options and providing additional healthcare benefits.
Entrepreneurs who have already implemented those changes are seeing their efforts pay dividends—75% of business owners reported that providing additional benefits to retain talent over the last 12 months had a meaningful impact on employee morale and retention.
New Growth Opportunities
Entrepreneurs will need to be creative to grow their businesses over the coming year and tapping into the latest digital tools and resources can help.
Eighty percent of business owners digitally optimized their businesses last year by adopting new tools and technologies, and 49% of business owners plan to incorporate automation and artificial intelligence (AI) tools in 2023. Overall, 90% of small business owners say digital tools helped make their business operations more efficient.
Most business owners are using new technology to accept more forms of cashless payments and streamline payroll and bookkeeping, but digital tools can also help facilitate marketing—nearly half of business owners primarily employ an online or digital-first marketing strategy. Entrepreneurs are also using digital tools to help them stay organized, reach new customers, and implement sustainable business tactics.
Setting the Standard
The last three years have forced business owners to adopt a nimble mindset as they try to stay a step ahead. Entrepreneurs who are looking to expand their business operations over the course of 2023 should consider implementing the following principles of an adaptable business model:
- Be Flexible: Today’s business owners are equally creative, optimistic, practical, and aggressive about the business goals they set and where their business is headed. Business owners should review their plans and remain open to reshaping their direction as the year unfolds.
- Be Measurable: By setting specific and measurable goals, business owners will be able to determine the effectiveness of their strategies and identify areas where their plans can improve. Setting objectives can help business owners measure the current and future success of their business model.
- Be Open to Learning: Business owners who commit to learning new skills will be able to better adapt to new challenges. By connecting with fellow entrepreneurs and partners, entrepreneurs can gain valuable mentorship and knowledge on how to grow and better their business.
Whether a small business has been around for decades or is just opening its doors, Bank of America is committed to providing Inland Empire businesses with the resources necessary to operate and grow a business at every stage.
Morongo Honored with National Awards by Two Tribal Organizations
National Center for American Indian Enterprise Development and the Native American Finance Officers Association have both recognized Morongo Transmission LLC.
The Morongo Band of Mission Indians’ formation of Morongo Transmission LLC as a precedent-setting energy venture was recently honored as the 2023 Government Impact Deal of the Year at the Native American Finance Officers Association’s (NAFOA) 41st Annual Conference in Washington D.C.
The award came shortly after Morongo was given the 2023 American Indian Leadership Award by the National Center for American Indian Enterprise Development (NCAIED) at the Res 2023 conference in Las Vegas.
The two awards recognized Morongo’s innovation and leadership in launching Morongo Transmission LLC, a project through which Morongo became the first Native American tribe in the nation to be authorized by the Federal Energy Regulatory Commission (FERC) as a participating transmission owner, or an entity that owns or operates power lines.
“We are thrilled to be recognized by two prestigious national organizations in tribal economic development for creating an innovative new vehicle by which our Tribe entered the energy transmission industry,” said Morongo Tribal Chairman Charles Martin. “The formation of Morongo Transmission was precedent-setting and offers a model to tribes and utilities across the nation for developing critically-needed infrastructure.”
In a deal that was 10 years in the making, Morongo joined with Axium Infrastructure to create Morongo Transmission, which then partnered with Southern California Edison to upgrade 48 miles of powerlines crossing Riverside and San Bernardino counties.
The project tripled the capacity of the powerlines and connected renewable solar, wind and battery energy resources in desert regions of Riverside and Imperial counties to population centers, furthering California’s clean energy mandates and strengthening the stability of Southern California’s power grid.
Morongo secured approvals from FERC, the California Public Utilities Commission and the California Independent System Operator (CAISO). The approval of Morongo Transmission’s application to join CAISO marked the first time that a federally-recognized tribe had been authorized to join the entity overseeing the operation of California’s bulk electric power system, transmission lines, and electricity market.
Beacon Economics Sets the Record Straight on the UCR Business Center Controversy
Beacon Economics Sets the Record Straight on the UCR Business Center Controversy
By Ken Alan, Forensic Business Journalist
A series of articles reported by the Los Angeles Times in February and April stated some University of California faculty members were “Raising the alarm about a research center affiliated with UC Riverside that they say uses corporate funding for reports ‘attacking proposals to improve the lives of working Californians.’”
The articles cite an “Open letter to the UC Regents seeking investigation of UC Riverside — Beacon Economics relationship,” signed by 56 faculty members at UC Riverside, Berkeley and Davis, along with 44 graduate students. Most signatories appear to be humanities studies faculty with credentials in media studies, music, history and political science. The Times failed to question why faculty with more relevant credentials in business, economics and research appear to have only three signatures.
The story states the letter to UC Regents was circulated by UCR Professor of Media & Cultural Studies Dylan Rodriguez, whose biography can be found here: profiles.ucr.edu/app/home/profile/dylanr.
No questions were raised about how the signatures were gathered at three participating schools and why closer Southern California campuses, such as UCLA or UC Irvine, weren’t included.
None of the articles explain why this petition was sent directly to UC Regents without first going through proper channels at UCR. “If there was some true complaint about the quality of our research, there is a system within UC Riverside to deal with that,” said Dr. Christopher Thornberg, principal at Beacon Economics. “There is an administrative office that handles complaints. And if they really thought that our research was substandard, they could and should have gone through that particular office. They didn’t. They went on this petition campaign. Most of the conversation is about how our answers are morally incorrect. And that’s a really slippery slope.”
The letter to UC Regents and ensuing negative press resulted in the UCR School of Business and Beacon Economics severing their partnership after seven years. “Obviously, the relationship between UC Riverside and Beacon was mutually beneficial. The school got a lot out of it,” said Thornberg. “UC Riverside is a fantastic institution. It is a reflection of what UC was built to be. Technically speaking, the center belongs to the school. It would be hard for me to see them continuing it. One of the biggest problems with these kind of centers is you have to have a motivated leader.”
Most of the controversy seems to stem from an August 2022 Beacon-UCR Research Report entitled “How Increases in Worker Compensation Could Affect Limited-Service Restaurant Prices.” In their letter to UCR Regents, the petitioners stated, “Beacon asserts that legislation allowing fast-food workers a say in setting their pay would mean fast-food price hikes of up to 20 percent or more. Fast-food companies are spending tens of millions of dollars to promote the findings of this report — which they funded. They are trying to convince voters that empowering fast-food workers — most of them women and most of them Latino, Black, or Asian — means a 20 percent ‘food tax.’”
“I’ve always been comfortable working with both sides as long as they’re comfortable with the fact that I’m going to give them the best answer I can on the basis of theory and data, not on the basis of some opinion of what’s morally correct,” said Thornberg. “For a very long time, we have dodged the culture wars. Not this time.”
The report clearly discloses that “This research was supported by the International Franchise Association.” Beacon Economics has prepared studies for both corporations and unions in the past. “We’re never going to sell answers. We’re never going to cozy up to one side or the other. Anybody who engages us in a contract will have to accept the results we come up with. It’s as simple as that. That is a rule we have gone by. I’ve had the opportunity of working, yes, with unions and with business organizations, with chambers and the United Way.”
Most of the conclusions presented in the report can be deduced by common sense, such as this summary statement: “If worker wages in the limited-service restaurant industry are raised, there is little doubt that workers who keep their jobs will be better off. But the change is not costless. Any increase in worker compensation will bring about an increase in prices for consumers, which could hurt lower income households who are already struggling with current inflation in food prices. It will also cause the industry to shrink, with fewer establishments and jobs.”
The report goes on to conclude, “Compensation increases in the 20% to 60% range will cause prices … to increase between 7% and 22%.” The petitioners argue other studies show “about a half percentage point menu price increase for every 10 percent rise in the minimum wage.” Whatever the real number, minimum wage hikes usually mean higher menu prices and fewer employee hours, according to Harri, a workplace management software company that works with more than 4,000 restaurants. Anyone who has visited a big box department store or fast food restaurant recently knows that self-serve kiosks are already displacing human workers to reduce labor costs.
“This entire episode truly saddens us. In a university environment, academic freedom and debate should be a cherished and protected norm, as should well-conducted empirical research, even if the conclusions of that research conflict with certain ideologies,” wrote Thornberg in an email to clients and business associates. “The ending of this partnership and the excellent work CEFD has done over the past decade for the community is not a win for the University, Beacon Economics or the Inland Empire region as a whole.”
The LA Times story also failed to fact check the letter’s claim that “Thornberg’s name doesn’t appear in school faculty or other directories.” Christopher Thornberg’s listing can be readily found in the UCR Profiles directory under “Affiliate – Research Associate” at profiles.ucr.edu/app/home/search;name=thornberg;org=;title=;phone=;affiliation=Affiliate
“When [UCR] first invited me to do the center, they asked me to come on campus and be a full-time faculty member and run the center. I was what they call an ‘unpaid faculty member.’ So I was basically nominated and approved by the business school to get a faculty position as an adjunct professor. But I wasn’t paid,” said Thornberg.
Beacon Economics will continue to operate in the Inland Empire without the affiliation of UC Riverside. “We’ll probably look for another partner at some point,” said Thornberg. “I’ve got nothing but support from our clients. All of our work that was being run through the university has been converted over to Beacon work. The only thing that’s really changing in terms of our efforts in the Inland Empire is the logo on the top of the page.”
Dr. Christopher Thornberg will be presenting on May 19th for the San Bernardino Council of Governments in Lake Arrowhead.
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