By Ron Kustek
Before you pass over this article because you “only support small businesses vs. big companies” — consider how we may have boxed ourselves in by potentially only supporting small businesses:
- The Small Business Administration states 44% of all US economic activity is done by “small business” defined as 10 or less employees.
- In Santa Cruz County, 82% of businesses are “micro-businesses” meaning they’re comprised of 5 employees or less (including the owner) with annual sales and assets valued at less than $250,000 per year.
- Review site Yelp has found over 100,000 businesses have closed in the U.S. during COVID-19 — with new estimates of nearly 55% having closed permanently. This impacts us.
It’s very expensive to live in our area, not just because we have high home values and high rental rates, but because our median income is lower than other areas, making this “affordability gap” the metric of our high cost of living.
The California Association of Realtors Housing Affordability Index measures the percentage of households that can afford to purchase the median-priced home in regions of California.
Though few of us would live in Orange County, based on Median Household Income vs. Median Home Price, it’s actually more affordable to live there than in Santa Cruz County (a higher index is preferred):
| County | Median HH Income(1) | Median Price(2) Home | Index |
| Orange County | $75,998 | $859,000 | 8.8 |
| Santa Cruz | 66,923 | $905,000 | 7.3 |
- US Census
- CARS 2020 Q2 Affordability Index Report
As housing is just one part of our living expenses, we also have to consider our other true cost of living factors, such as the cost of health insurance.
Though they would love to, many small businesses can’t afford to pay health insurance and also provide a living wage for employees.
Many small businesses also rent — not own — and landlords are small business owners as well, and charge the ever-increasing market rate for rents to increase their own incomes.
This all combines to squeeze the small business owner to hire part-time workers and pay minimum wage, in order to have a bit of profit left over to support their own families.
So what does all this have to do with bigger businesses? “Big companies” aren’t evil because of their size or inherently bad corporate citizens.
There are a great number of reputable, well-respected and good companies that treat employees well and don’t pollute or over-pay their CEO. Consider that “big companies” could actually help high cost of living areas — like ours.
For decades it’s taken 2 people in the household to provide for family expenses such as food, home, medical, etc. Bigger companies have a larger pool of employees to spread the risks for a health insurer, and are thus better able to afford and provide health care coverage to their employees.
If one person in the household were able to work for that “big company,” they could better be able to provide health insurance for the rest of the family.
This would free up the other household member to work for a small business that doesn’t provide health insurance.
Larger companies are also able to pay employees more. They’re able to spread fixed costs like rent, salaries and utilities, over a larger sales base, which makes each sale provide a greater profit margin than the profit margins for smaller businesses.
By providing more higher-profit services or selling more profitable items, these companies are better able to pay their employees more ━ whether that’s a true living wage, a bonus, or just a higher salary. Again, if one person in the household were able to work for that big company, this would free up the other household member to work for a small business that doesn’t pay as much as the larger company.
We also need to think of our future growth ━ steady population growth has more needs and more purchasing power. Many households are putting off having children because they can’t afford a family now, based on the payrolls from the area being so dependent on smaller businesses. When our economy (small + big business) better supports local households so they make more money, people can better afford to start families. Those families eventually create young adults needing a first job ━ one that can be provided by a small business that may not pay as well, but one that teaches commerce, responsibility, etc.
The bottom line is that we need BOTH small businesses AND big companies. Let’s realize we need to support both and make our community a more welcoming place for everyone, both big and small.
Top Photo: Nout Gons ● Pexels