UCLA economists create tool to track online microbusinesses

UCLA economists announced Thursday they have a created a tool for tracking online microbusinesses to show how they contribute to local economic growth.

According to the UCLA Anderson School of Management, economists Leila Bengali and William Yu developed the index to track the activity of online microbusinesses at the national, state, core-based statistical area (CBSA) and county levels, demonstrating for the first time a way to monitor the activity of an important but often overlooked driver of the economy.

“Our aim was to create an index that measures online microbusinesses, and that picked up facets that correlate with local labor markets and economic activity,” Bengali and Yu said in a joint statement. “The index and report shows through statistical techniques the unique characteristics and substantial impact microbusiness owners and their businesses have on their local economies.”

The index draws on data provided by GoDaddy’s Venture Forward initiative, a multiyear research effort to quantify the impact that online microbusinesses have on local economies, according to the economists.

Venture Forward analyzes the economic impact of the 20 million U.S. online microbusinesses created by GoDaddy customers. A microbusiness is defined as a discrete domain name with an active website — an online store, for example — with the vast majority having 10 or fewer employees.

The economists’ first report drawing on the data examines how online microbusinesses fared during the pandemic, where such companies are distributed across the U.S. and identifying local factors that contribute to their formation and growth.

“GoDaddy sees directly the outsized impact of microbusinesses on their owners and local communities, especially notable during such a trying time as the COVID pandemic,” said Jeremy Hartman, vice president, Venture Forward at GoDaddy. “This index and report provides an easy way to make this impact come to life for everyone, which also helps everyone’s understanding of the unique needs of microbusiness owners.”

Bengali and Yu arrived at four conclusions in their report:

• Digital infrastructure: Broadband facilitates the formation and enhances the success of online microbusinesses, as counties with a higher fraction of residents with broadband access tend to have stronger labor market outcomes.
• Education and access to skills training: At least some measures of the relationship between human capital and skills training are positively related to online microbusinesses, even after controlling for various county characteristics.
• Access to capital: Formal lending institutions do help online microbusinesses, but a regression analysis and case study also suggest that these online microbusinesses need to access capital in a different way or in smaller quantities than do other businesses.
• Microbusinesses and the local economy: Counties with more online microbusinesses per capita tended to have stronger labor markets, as measured by the unemployment rate and the employment-to-population ratio, and even after controlling for other factors. This finding, combined with survey evidence from GoDaddy, suggests that online microbusinesses contribute to economic growth at the local level.

The report is one of a series of analyses conducted by the UCLA Anderson Forecast.

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