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Study finds microbusinesses contribute to lower unemployment rates, boost economy

The Anderson School of Management is pictured. A recent study by the School of Management’s economists and GoDaddy Venture Forward found that microbusinesses contribute to lower rates of unemployment. (Daily Bruin file photo)

By Stephanie Seo

May 22, 2024 7:33 p.m.

A joint report from GoDaddy’s Venture Forward and economists at the UCLA Anderson Forecast found that online microbusinesses contribute to lower rates of unemployment.

The study, released in March, found that one entrepreneur opening a microbusiness with a GoDaddy domain and website creates about seven new jobs through direct and indirect hiring and boosts local economies.

Microbusinesses have an outsized impact on their communities’ economies, said Alexandra Rosen, senior director of GoDaddy Venture Forward and an alumna of the UCLA Anderson School of Management.

Rosen’s role at Venture Forward entails uncovering data about entrepreneurs and analyzing the meaning behind it.

“We (Venture Forward) have grown from looking at over 20 million microbusinesses, those with 10 or fewer employees, in the U.S. to now being in four countries,” Rosen said.

The boost of employment from online microbusinesses appears sustainable because such employment is more resistant to economic downturns, said William Yu, an economist at the School of Management. Online microbusinesses provided an alternative way for people to make money after the COVID-19 pandemic forced businesses to close, he added.

Employment from online microbusinesses is long-term because employees often spend their excess disposable income on their local businesses, helping these businesses grow in profit and size. As these microbusinesses continue to grow in employees over the years, they continue to contribute to the growth of the local economy by spending more, Rosen said.

While the study focused on the impact of microbusinesses on local communities, the findings could also be applied at the national level, Rosen added.

Yu said Anderson Forecast’s partnership with Venture Forward began because of the latter’s desire to understand how “everyday entrepreneur activities” impact local economies. Venture Forward provided data from its microbusiness customers for the Anderson Forecast to analyze.

“We all know that entrepreneurship is powerful and important, but without data, maybe that’s just a hunch,” Rosen said.

Rosen added that the suggestions of the study include placing a greater emphasis on the role of microbusinesses, given their impact on the economy. She said when recruiting economists for the study, she was looking for those with experience in both microeconomics and macroeconomics.

“The implications are to think about that when we do economic planning, to make sure that small businesses have a seat at the table, because they’re also important for economic health, which then makes the whole community stronger,” Rosen said.

The best way for the government to support microbusinesses is to minimize intervention, said Mark Schniepp, the director of the California Economic Forecast, in a written statement. California, for example, could enact a temporarily lowered tax rate on small businesses so they can invest more of their revenue back into their company through additional hiring, purchasing equipment and space expansion, Schniepp added in the statement.

Policymakers looking to support online microbusinesses can do so by helping the businesses get online effectively, market themselves and expand their access to capital, Rosen said. Online microbusinesses often need less than $5,000 to start building their companies, but many owners still have to take out personal loans, Rosen added.

“If they (policymakers) can help them get those three things, especially get those microloans at affordable rates … that really helps,” Rosen said.

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Stephanie Seo
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