Microbusinesses generate new jobs, raise income and significantly increase GDP in their local communities, according to a landmark report that pinpoints the tangible economic benefits that entrepreneurs bring to their local areas.
The findings come from Venture Forward, an annual international research initiative by GoDaddy and additional analysis from economics consultancy, Frontier Economics. In what is believed to be the first study of its kind in the United Kingdom, the results demonstrate the significant economic impact that start-ups can have on their communities.
Venture Forward maps the concentration of digital microbusinesses – typically defined as having 10 employees or fewer, with a unique domain and active website – against local population sizes to assign every constituency in Britain a Microbusiness Density figure, which measures the number of microbusinesses per 100 people in each constituency.
Driving job growth
While entrepreneurs have long been lauded as employers in their local communities, these findings reveal their contribution to job creation is more significant than previously thought.
For every additional microbusiness started, the study found that seven jobs are created. This includes direct factors, such as hires by the business itself, and indirect factors, such as increased demand for products and services from suppliers, which leads to further hires.
Increasing wages
Microbusinesses also substantially increase pay in their local areas, according to Venture Forward. The analysis shows that for every one point increase in Microbusiness Density, median annual pay for full time workers increases by £1,400 – a 4.4% increase over the sample’s median annual pay of approximately £31,500. This is especially important at a time when many Brits grapple with the rising cost of living.
The study also found that the availability of super-fast broadband also plays a role in supporting income. A 1% increase in broadband availability is associated with an increment of about £110 in median annual pay, demonstrating the important of connectivity to microbusiness and wage growth.
Boosting GDP
The study has also been able to put a figure on the local GDP growth that comes as a result of a rise in job creation and boost of earnings delivered by microbusinesses.
Each additional microbusiness per 100 people delivers a £37,000 rise in local GDP.
Under-researched, misunderstood and often under-served
The microbusiness sector in the UK has experienced significant growth over the last two decades, growing from 3.5 million in 2000 to 5.2 million today. In contrast, businesses of other sizes have seen minimal growth or a decline during the same period. As a result, microbusinesses now contribute to 32% (8.7 million employees) of private sector employment and 19% of total economic output (£808 billion).
Despite this, data on microbusinesses is generally scarce because these businesses often have limited resources and may not prioritise data collection and reporting. Many are also exempt from certain reporting requirement. As a result, microbusinesses, especially digital ones, are often overlooked in the public debate and the crucial role that they play in the economy is rarely acknowledged by policymakers and researchers.
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