How Important Are Small Businesses?
While President Trump gets all the headlines on Twitter, true connoisseurs of the executive branch know to also follow VP Mike Pence's account.
Pence exists as the level-headed counterweight to POTUS's incessant bluster. He is reassuringly robotic, and while his backwards views are somewhat (OK, very) problematic, he at least appears capable of avoiding nuclear war. Like a throwback to a more innocent age, Pence's tweets are filled with generic politician boilerplate, from meeting kids in the Capitol Hill rotunda to telling very interesting anecdotes about his new desk.
Looking to learn more about psyche of the man whose dining habits have spawned far too many thinkpieces, I dug into Pence's tweet history for information. It soon became apparent that Mike Pence absolutely ADORES small business:
This reverence towards small business is not particularly unusual for a Republican. A traditional GOP stump speech comes stuffed with references to "job-killing" regulations that are holding back the nation's hard-working small business owners, and, by sheer coincidence, also holding back the nation's large business owners/Republican party donors.
However, to understand if preaching the gospel of small business is still a viable political strategy in 2017 I believe it is worth considering the following questions:
1. Does Small Business Matter to America's Economy?
2. Does Small Business Matter More to Republicans?
To tackle these with data I looked to the US Census Bureau's County Business Patterns (CBP) dataset. The CBP dataset provides summaries of the number of businesses (along with employee counts and total payroll) by both county and industry, allowing for a deep-dive analysis into small business trends by region. The catch is that the data is only available through the end of 2014, so the numbers here will be a touch out-dated.
I paired the CBP data with county-level 2016 Presidential election results to assess if small business is more influential in Republican-held areas.
If you're interested in replicating/critiquing/giving feedback, all my code can be found here.
Onwards!
1. Does Small Business Matter to America's Economy?
The chart below shows the percentage of total businesses, payroll, and employees falling into each of nine employee-count buckets defined by the Census bureau (all data from 2014).
Perhaps unsurprisingly, businesses with 1-4 employees make up the majority of US firms but a relatively small portion of total payroll and hiring. Combine the first three buckets, though, and you find that businesses with under 20 employees contribute a little over 20% of total hiring and payroll. Not huge, but not insignificant either.
And for those of you that think data visualization is overrated, here are the raw numbers:
| Employer Size | % of Employees | % of Companies | % of Pay |
|---|---|---|---|
| 1 to 4 | 5.8% | 54.5% | 5.5% |
| 5 to 9 | 7.7% | 18.6% | 5.9% |
| 10 to 19 | 10.8% | 12.8% | 8.5% |
| 20 to 49 | 16.6% | 8.8% | 13.8% |
| 50 to 99 | 12.7% | 3.0% | 11.5% |
| 100 to 249 | 15.9% | 1.7% | 15.8% |
| 250 to 499 | 9.3% | 0.4% | 10.6% |
| 500 to 999 | 6.8% | 0.2% | 8.7% |
| 1000+ | 14.4% | 0.1% | 19.6% |
However, a counter-argument to small business enthusiasts could be that firms with only a few employees tend to not be in great industries. Indeed, a trend in the chart above is that the employee percentage is higher than the payroll percentage for small businesses, indicating that these workers are earning less than those at larger firms.
To look at industry differences between firms of various sizes I aggregated the nine Census-defined buckets into a Small/Mid-Size/Large classification. Firms were matched to industries based on their three-digit North American Industry Classification System (NAICS) code. This code was provided with the Census CBP data and gives a very rough idea of what on earth a business is doing. The codes actually range from two-digit (most aggregated) to six-digit (most granular), although I found that missing data started to be a big problem when looking beyond two and three digit codes.
In any case, the charts below show the number of industry employees working in firms of a given size (small, mid-size, or large) against that number as a percentage of the industry's total workforce. For example, "Food services and drinking places" is the single largest industry for small (under 20 worker) firms, even though the small firm workforce makes up only about 26% of the industry's total.
From this data we see that "Food services and drinking places", "Professional, scientific, and technical services," and "Ambulatory health care services" are the largest industries for small firms. What are these? Checking some BLS definitions we see that jobs like cooks, servers, accountants, architects, medical assistants, physicians, and dentists are all included. So it's quite broad.
Still, while these jobs might not get the most press, I would note that many of them seem quite automation-proof due to their customer service component.
To answer the first question: small business make up a solid (>20%) portion of US economic output, although workers in small firms tend to earn a little less than those in larger businesses. In addition, three-digit NAICS codes are not very useful. On to question two:
2. Does Small Business Matter More to Republicans?
To begin with, here is a map showing county-level election results from 2016. My main takeaways are that a) geographic visuals really make Republicans look good, and b) making this map in R took a lot of effort. A nice tutorial on using shape files can be found here.
Before looking at the relationship between the Republican vote and small businesses, it's useful to note the relationship between the Republican vote and population. The chart below plots 2016 county-level GOP vote percentage on the y-axis against the natural log of county votes cast. I'm using vote count here as a proxy for population, but it is interesting just how much better Republicans do in areas with lower vote totals. Based on Republican rural strength I'd imagine that adjusting for area through a pop/mile metric would yield an even stronger relationship.
Not a shock, but it also turns out that counties with lower vote totals tend to have fewer employees per firm. To get this chart I estimated the number of workers per firm in each county using the 2014 CBP data. Some hacky interpolation was needed due to missing/bucketed data, so this chart probably shouldn't end up on reddit or 538...but in any case it appears that areas where Republicans are strongest also tend to have the lowest number of employees per firm.
To finish, we have the same county-level chart as above, except colored by whether the GOP or Democrats won the county in 2016.
I think what's interesting here is that the Republican county distribution is (pretty much) overlaid on top of the Democrat distribution in places where the vote totals are similar. To me this indicates that, for a given county size, the influence of small business is about the same in Republican vs Democratic held areas...it just so happens that Republicans control the majority of the smaller counties. For this reason I think it still makes sense for Pence and co. to push a pro-small business message, even though Republican counties aren't more likely to rely on small businesses once you control for size.
Conclusions:
- Continuing to tweet about small business is likely a viable political strategy for Pence. Small business still retains a strong influence on the US economy, especially in industries that I (albeit with zero concrete evidence) do not think are going away soon.
- Areas where Republicans voters live (i.e. more rural counties) have a greater reliance on small business (as measured by employees per firm). Not a huge surprise.
- Making charts in ggplot2 still takes me forever.