The Determinants Of Primary Employment In U.S. States

Abstract

We examine the relationship between `primary employment` and `business friendliness` of U.S. states. Do states with a low score in `business friendliness` worry small business owners too much and hence force them to run their business as their primary job? We look at several main components of `business friendliness` including `Ease of start`, `Ease of hire`, `Overall regulations`, and `Training and networking`. We also look at subcomponents including the different types of regulations and technology use. How does each of these factors affect a business owner’s decision to focus mainly on his/her business? We use the `United States Small Business Friendliness Survey` done by Kauffman Foundation and Thumptack.com in 2013 and converted the letter scores ranging from A+ to F in the survey to numerical scores ranging from 12 to 1 (i.e. 1 being the lowest score which corresponds to F). Therefore, after the conversion, each state has a numerical score on each business-friendliness category. The survey also asks business owners if they use the internet when starting a business, when paying their taxes, or when licensing. For each state, we compute the percentage of owners in each state using the internet when starting a business, when paying their taxes, or when licensing. We call these three percentage numbers for each state their `Internetstart`, `Internettax`, and `Internetlicensing` scores. Then, using the mean score for all states for each type of regulation or internet score, we divide the states into two groups: the `high-score states` and the `low-score states`. In our analysis, we use non-parametric tests to compare the `high-score states` to the `low-score states`. Our non-parametric tests show that although none of the main components (i.e. `Ease of start`, `Ease of hire`, `Overall regulations`, and `Training and networking`) seem to affect `primary employment`, the overall business friendliness score of a state significantly affects `primary employment`. When we examine the different types of regulations, we find that `Health and safety regulations`, `Licensing regulations`, and `Zoning regulations` affect `primary employment`. `Employment regulations`, `Tax code`, or `Environmental regulations` does not have a significant impact. These findings may indicate that business owners are more worried with regard to Health and safety regulations, Licensing regulations, and Zoning regulations, therefore more of them choose to take matters into their own hands. Another possible explanation may be the relative complexity of the tasks associated with these regulations. Finally, our results show that technology use in the entrepreneurial process does not affect `Primary employment`.