To help small businesses, lawmakers should loosen regulations
This week is National Small Business Week. And to celebrate small businesses, the Minnesota Department of Employment and Economic Development (DEED) has planned several events.
From September 13 – 15th of this week, Commissioner Grove will be visiting small businesses to celebrate their contributions to their communities and the SBA will host a three-day virtual summit with numerous educational panels providing innovative practices for entrepreneurs.
“Here in Minnesota, new small businesses are more likely to be thriving at five years than anywhere else in the country,” said DEED Commissioner Steve Grove. “At Minnesota’s Department of Employment and Economic Development (DEED), we are working hard to support small businesses whether they are launching the next new medical device start up or have been a community staple for decades.”
Indeed, small businesses are an important part of Minnesota’s economy. They employ 46 percent of all state workers and account for 1.3 million jobs.
Recent trends, however, reveal that small businesses might be in trouble.
For example, while Minnesota has one of the highest business survival rates, the state is creating fewer new businesses. Consequently, employment in new and young businesses has been declining.
Figure 1: Employment in New And Young Businesses
In 2020, new and young businesses accounted for 31.3 percent of all businesses in Minnesota. The national average was 37.7 percent.
Additionally, the share of new and young Businesses in Minnesota declined 4.6 percentage points between 2000 and 2020. Nationally, the decline was slightly lower.
Excessive regulation is hurting business creation
High taxes are a significant factor in Minnesota’s declining entrepreneurship. Lowering taxes would likely incentivize business creation and create new jobs. But another important way through which Gov. Walz and the legislature can help small businesses and entrepreneurs thrive is by creating a conducive regulatory environment.
On various measures, Minnesota does not rank favorably when it comes to regulations affecting small businesses.
The 2015 Small Business Index from the Pacific Research Institute, which analyzes numerous land and labor regulations, for example, ranked Minnesota as the 32nd least burdensome state when it comes to regulations affecting small businesses in 2011.
Why does Minnesota rank so low?
Among other things, Minnesota is not a right-to-work state. This reduces worker and business freedom. Family leave regulations are also restrictive. Minnesota also scores low on other laws, like workers’ compensation insurance and minimum wage.
While Minnesota scored relatively well on occupational licensing, the state’s overall licensing burden has grown in recent years. Minnesota also ranked low on land use regulations (33), state energy regulations (34), and telecommunications regulations (50).
These rankings have only gone worse in recent years.
A 2019 Small Business Policy Index from the Small Business and Entrepreneurship Council ranked Minnesota as the 45th most friendly state for small businesses.
Minnesota’s major economic hub –– Minneapolis –– has also consistently ranked low on the Doing Business in North America Index, a study that ranks cities in six categories on the ease of starting and operating a small or medium-sized business. In 2018, Minnesota ranked 40th among major US cities.
Conclusion
Small businesses are integral to the economy of Minnesota. To help them thrive, Gov Walz and the legislature need to reform regulations that raise the cost of creating and operating a business in Minnesota.