Want To Create Jobs? Buy Local

Everyone is concerned with job creation these days. Ultimately, jobs are created, as Linda McMahon said in that famous Connecticut debate before the 2010 election, when “An entrepreneur takes [a] risk. He or she believes that they create [a] good or service that is sold for more than it costs to create it. If an entrepreneur thinks he can do that he creates a job.” The decision is up to the business owner to add headcount to meet rising demand for goods and services that generate a profit.

But is there anything people who don’t own businesses can do to help boost job creation?

It’s an interesting question. In 2004, Civic Economics, a research firm, undertook a study of Andersonville, a district on Chicago’s north side with lots of smaller, independent stores arranged in a way that encourages foot traffic. The district was pondering the pros and cons of bringing in chain stores, and so the researchers combed through the books of several local independent merchants and compared them with financial statements filed by publicly traded chains. The study determined that, for every $100 spent at an independent store, $68 remained in the community, in the form of local wages and benefits, the local owner’s profits, payments to local suppliers and local charitable contributions. With chain stores, that number fell to $43 (since the profits largely went to shareholders based elsewhere, and charitable giving followed corporate rather than local priorities).

Chain stores overall produced more revenue, so if a town’s only concern was sales tax revenue, that would seem to point in one direction, though the study claimed this was because chain stores were bigger; revenue per square foot was roughly comparable (actually the independents pulled in a few more dollars per square foot).

But one thing that stood out for me was a figure that’s harder to spin: independent merchants spent 28% of their revenues on wages, and chains spent 23%. The direction of this difference was confirmed in a 2008 Civic Economics study of Grand Rapids, which compared independent and chain merchants in multiple categories. For every $1 million in revenue at grocery stores, chains employed 4.2 people, and local merchants employed 5.0. For every $1 million in revenue at pharmacies, chains employed 1.9 people, and local pharmacies employed 3.3. At restaurants, $1 million in revenue corresponded to 14.8 jobs at local establishments (but just 9.7 jobs for chains). With banks, locally-owned, independent firms spent 1.8% of assets on labor, whereas chains spent 1.1%.

If you think about it, this makes sense. Independent merchants would have trouble achieving the same economies of scale as a chain. They are often doing their own marketing and their own procurement, and they don’t have corporate policies that dictate store layout or even bagging policies designed to require the least amount of labor. This is not necessarily good or bad — just optimizing different things. Publicly-traded chains may be trying to maximize shareholder value by keeping costs low, while smart independent merchants could use their higher manpower requirements to carve out distinctive niches which would keep them from needing to compete directly on price. Need to hire people to man your bookstore? Then hire people who can create a pleasant atmosphere, and know enough about enough books to do great recommendations, as Nikki Furrer has done with Pudd’nHead Books in St. Louis, where I visited recently — growing, incidentally, while Borders filed for bankruptcy.

Regardless, this manpower difference suggests one way any consumer can help create jobs: switch some of your shopping to independent, locally-owned stores. The Grand Rapids study claimed that a 10% shift in market share to local firms could create 1614 jobs in Kent County. This might be optimistic. If local firms got bigger, they might achieve some of the economies of scale that eluded them before. But it probably wouldn’t zero out, and what makes shopping fun is when you can turn it into more of an experience rather than a sheer acquisition of goods. Finding something distinctive in a pleasantly different shopping environment will do that. If you need Pampers, you can buy those at a chain or online. If you need a gift, though, at about a $50 price point but you don’t care what, that might be a good place for some switching.