L.A. Region Ranks 6th Most Dependent on Small Businesses for Employment

The metropolitan area composed of Los Angeles, Long Beach and Anaheim is the sixth-most dependent on small businesses for employment and therefore is especially hobbled by the limitations on small businesses that have been imposed in response to the COVID-19 pandemic, says an employment report release on Feb. 11 by the trade publication Construction Coverage.

It’s no secret that the majority of American employment is generated by small businesses. According to the U.S. Small Business Administration, small businesses account for 64% of net private-sector jobs created since 2005. Collectively, small enterprises employ around 60 million Americans, which represents nearly half of the private workforce in the U.S. Construction Coverage noted that compared to larger firms, small businesses are more nimble, which promotes competition and innovation in the economy.

At the same time, small businesses are especially vulnerable during economic turndowns because they have fewer financial resources than larger firms, which can more easily turn to banks or capital markets for an infusion of funding in tough times. Small enterprises are more likely to respond by scaling back operations, letting go of employees, or closing altogether.

It’s why the Joe Biden Administration is trying to funnel more federal assistance towards small businesses.

Some regions have been more affected than others. The following numbers illustrate the impact of small business restrictions in the Los Angeles/Long Beach/Anaheim region.

Los Angeles-Long Beach-Anaheim Region

Percentage of employees at small businesses: 51.93%

Total number of small business employees: 2,764,749

Total number of small businesses: 313,657

Percentage of total payroll paid by small businesses: 46.12%

Total small business payroll per employee: $52,115

Total large-firm payroll per employee: $65,764

While the recession of 2008 and the slow recovery that followed were hard on all sectors of the economy, small businesses struggled even more than large firms. Thousands of small businesses failed in the wake of the recession. Many would-be small business owners decided not to take on the financial risk of starting a business during the weak economic recovery, and lenders proved more risk-averse in financing new businesses as well. As a result, industry concentration in large firms has increased over the last decade, and employment growth at large businesses has far outpaced that of small businesses over the same period.

Today, COVID-19 is creating more difficulties for small businesses. Some of the industry sectors that tend to be most densely populated with small firms have also been the sectors most affected by shifts in consumer behavior and government restrictions meant to slow the spread of the virus. Notably, accommodation, food services and retail businesses together employ nearly a quarter of all small business employees. But with more people staying at home, these firms — many of which have already been forced to close — face dire circumstances.

The continued success of small business matters more for some locations than others.