Microenterprise Activity and Poverty Reduction: A County-Level Analysis in Urban America

Abstract

The study aims to empirically evaluate the efficacy of microenterprises as a poverty alleviation strategy in urban counties of the United States. It builds upon a poverty estimation model by incorporating two microenterprise variables: non-employers and establishments with 1-4 employees. These variables are examined as determinants of the urban poverty rate at the county level. The conceptual framework posits that microenterprises can contribute to poverty reduction by creating employment opportunities and generating income for individuals and families. By analyzing the relationship between microenterprise activity and urban poverty rates, the study seeks to provide insights into the effectiveness of microenterprises as an economic development tool. The empirical analysis utilizes data at the county level to estimate the impact of microenterprise activity on poverty rates across different spatial dimensions, including suburban counties. The results suggest that microenterprises with 1-4 employees are effective in reducing urban poverty, while non-employer microenterprises have a less pronounced impact, particularly in non-suburban areas. Furthermore, the study addresses spatial dependency bias in the analysis to ensure the robustness of the findings. It finds evidence of a positive association between non-employer microenterprises and income inequality, suggesting that while non-employer microenterprises may not significantly alleviate poverty, they may contribute to income disparities within urban areas. It is important to note that the positive relationship between non-employer microenterprises and income inequality does not imply that such enterprises are ineffective or should be discouraged. Instead, the findings underscore the need for nuanced policy approaches that consider the diverse impacts of microenterprise development on poverty and income distribution. The study provides valuable insights into the role of microenterprises in urban poverty alleviation efforts and highlights the complexities inherent in addressing poverty and inequality through small-scale entrepreneurship.