Opinion and Economic Analysis

Hicks: Indiana good, but not optimal, for small firms

July 12, 2014

Kauffman Foundation recently studied the friendliness of states to small businesses. While the study suffered most of the extreme weaknesses of survey research—especially small samples and the bias of opinion over action—overall, there were some very interesting and illuminative points.

The study reinforced the point that most economists make about taxes and local prosperity. Most respondents reported being satisfied with their tax obligations.

Second, the study gave Indiana poor grades for ease in finding workers, leveling blame on networking and training programs. This is interesting, but almost certainly not the actual problem. The survey asked only 11 Indiana businesses these questions, and Indiana received very good grades in the past couple of years.

What possibly could have changed the grade from an A to a D in one year? The answer is most likely that labor markets are now tighter in Indianapolis, where 10 of the 11 surveyed firms were located. It is harder to hire when fewer people are without work, as is the case in Indiana.

That isn’t bad news here in Indiana, but it certainly demonstrates that asking people questions is a poor substitute for observing their actions. Because small-business hiring in Indiana has been strong over the past couple of years, it is more than improbable that a major failure of training programs, online hiring sites and social networks have contributed to a harder hiring season.

Finally, the survey asked about occupational licensing and the difficulty of starting a company. While Indiana received a B in this area, several other states did much better, and that is a worry.

In many states, doing business is ensnarled in red tape, most of which is designed to keep competition at bay. Our state licenses auctioneers (presumably so they can be ticketed for talking too fast), and the state maintains a 28-page booklet regulating the massage therapy occupation, of which just a page and a half is dedicated to actual massage do’s and don’ts.

At least Indiana did away with licensing hypnotists in 2010, but we do maintain a registry of interior designers and installers of manufactured homes. All of this is a pretty bald-faced attempt to stifle competition. Small businesses not affected by occupational licensing problems still face regulatory impediments that do little to promote our biggest job creators—small business.

As in most business rankings over the past few years, Indiana does better than our neighbors, but the Kauffman study, for all its limitations, gives us some good direction in simplifying government involvement in our lives.•

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Hicks is the George and Frances Ball distinguished professor of economics and director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.
 

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