Open for Business: Characteristics of Minnesota Businesses in 2007

By Rachel Vilsack
August 2010

Labor market information comprises the “who, what, where, and when” of business statistics. It shows the number of firms and employees in the various industries and regions of Minnesota and how the numbers have changed over time. At the center of labor market information are the data on business establishments known as the Quarterly Census of Employment and Wages (QCEW), which record information on firms covered by state Unemployment Insurance (UI) — firms with paid employees who are covered under the UI program — along with geographic features and time-series details that make this data set rich.

However, there is a limitation with the QCEW. It does not capture counts of nonemployer firms (where the owner is the sole employee) or other characteristics of business owners, such as gender, race, or ethnicity, which provide a more comprehensive picture of the state’s business community. But, the U.S. Census Bureau gathers such characteristics.

Survey of Business Owners

The Survey of Business Owners (SBO), conducted every five years by the U.S. Census Bureau, identifies the economic and demographic characteristics of U.S. firms and business owners by gender, race, and ethnicity. This data series — available since 1972 as part of the Economic Census — includes businesses, those with paid employees and those without paid employees, who file Internal Revenue Service tax forms as proprietorships, partnerships, or corporations with annual receipts of $1,000 or more.

By analyzing research reports on the demographics of business ownership and minority-owned businesses the Small Business Administration assesses business needs and allocates resources for business assistance. Government entities use the data to plan, direct, and assess programs that promote the activities of disadvantaged groups and to establish contract procurement practices for underrepresented businesses. Researchers use the statistics to analyze long-term economic shifts in business ownership among geographic areas.

Since the SBO is conducted only twice during a 10-year period and is the only comprehensive survey of its kind, new results prove to be a newsworthy topic. Preliminary estimates from the 2007 SBO were released in July 2010 (www.census.gov/econ/sbo). The SBO surveyed 2.3 million businesses and had a response rate of 62 percent. It should be noted that these data largely precede the economic downturn of 2007-2009. Unfortunately, we’ll need to wait until the 2012 SBO to identify any long-term effects of the recession that may have impacted the gender, race, or ethnic makeup of business owners in Minnesota.

Minnesota’s Business Owners in 2007

According to U.S. Census Bureau estimates, in 2007 there were nearly 497,000 firms in Minnesota with combined sales in excess of $602 billion. Approximately 116,300 Minnesota firms had paid employees in 2007, contributing $101 billion in annual payroll.[1] Three out of four Minnesota firms had no paid employees in 2007 (see Table 1).

Firms with no paid employees are found in almost every industry sector in Minnesota. Only one sector — management of companies — had paid employees in all of its businesses. The highest percentages of firms with no paid employees relative to total firms in 2007 were in:

• Agriculture, farming, fishing, and forestry (92.5 percent)
• Art, entertainment, and recreation (90.2 percent)
• Real estate (86.6 percent)

Alternatively, only 31.2 percent of firms in the accommodation and food services sector had no paid employees. Half of wholesale trade (49.8 percent) and manufacturing (50 percent) firms in Minnesota had no paid employees in 2007 (see Figure 1).

With a 12 percent growth rate, Minnesota ranked 35th among states in the percent change of total firms between 2002 and 2007. Nationally the total number of firms (those with paid employees and those with no paid employees) grew by 18 percent during this five-year period. Firms with no paid employees grew faster in Minnesota (15.3 percent) between 2002 and 2007 than firms with paid employees (2.2 percent). Business receipts grew between 2002 and 2007 by 30.5 percent in Minnesota and 33.5 percent nationwide (see Table 2).

Characteristics of Business Owners

Tables 1 and 2 also display the characteristics of business ownership in Minnesota.[2] The distribution of firm ownership reveals that 6.2 percent of Minnesota firms in 2007 were minority owned. One percent of Minnesota firms were Hispanic owned, 26.8 percent of firms were owned by women, and 8.8 percent of firms were owned by veterans.

Spotlight on Minority-Owned Firms in Minnesota

Firms owned by African-American, Asian, American Indian, Native Hawaiian, or Hispanic individuals grew by 43.1 percent in Minnesota between 2002 and 2007, compared to 45.6 percent growth in minority-owned firms nationwide. While minority-owned firms account for 6.2 percent of all firms in Minnesota, they account for 21.3 percent of all firms nationwide. Just 1 percent of firms in Minnesota were owned by Hispanic individuals in 2007, compared to 8.3 percent of U.S. firms (see Figure 2).

The largest number of minority-owned firms in Minnesota is in health care and social assistance (4,547), professional and technical services (4,326), and other services (3,886).[3] However, the largest number of minority-owned firms that had paid employees was in the accommodation and food services sector. With 1,082 firms and 9,596 employees in 2007, this sector accounts for one in four minority-owned firms with employees (see Table 3).

Spotlight on Women-Owned Firms in Minnesota

Minnesota’s concentration of women-owned firms (26.8 percent) closely mirrored the U.S. average (28.7 percent) in 2007. The number of women-owned firms in Minnesota grew just 7.5 percent between 2002 and 2007, with growth exclusively in firms with no paid employees. In fact, Minnesota had the third-smallest growth rate in women-owned firms among the 50 states between 2002 and 2007.[4] Women-owned firms grew by 20.1 percent on average nationally over the five-year period.

Figure 3 displays the industry distribution of women-owned firms in Minnesota. The health care and social assistance sector accounts for the largest number of women-owned firms (2,168 firms with paid employees and 20,542 firms with no paid employees). A high number of Minnesota women also owned firms in professional and technical services (20,966) and retail trade (19,115). 

Some industry sectors had high concentrations of businesses owned by women in 2007. More than half of health care and social assistance firms (53.2 percent) in Minnesota were women owned, as were 43.3 percent of educational services firms. More than one-third of Minnesota firms in other services, retail trade, and administrative and support services were owned by women in 2007.

Conclusion

The Survey of Business Ownership data are a welcomed complement to traditional business establishment statistics available through state labor market information offices. Understanding the gender, race, and ethnic makeup of Minnesota businesses helps us track the trends in ownership and offers policymakers a benchmark with which to target business expansion, particularly for groups underrepresented in business ownership. More data from the 2007 SBO will be released later this year and into 2011 to detail the industrial and sub-state geographic locations of women-, minority- and veteran-owned businesses.

[1]Differences in U.S. Census Bureau and DEED establishment and employment counts are attributable to the source of data collection.  The Economic Census samples more than 2.3 million nonfarm businesses filing tax forms as individual proprietorships, partnerships, or any type of corporation, and with receipts of $1,000 or more; whereas QCEW data are from administrative records submitted by businesses that are covered by the state’s UI program.
[2]Ownership is defined as the individual(s) who controls 51 percent or more of the stock or equity of the business.
[3] The other services industry includes repair and maintenance, personal services (like hair salons), dry-cleaning and laundry services, death care services, and religious, civic, and professional organizations.
[4]Only Iowa (3.9 percent) and Nebraska (6 percent) had women-owned business growth rates smaller than Minnesota (7.5 percent) between 2002 and 2007.

Top