Number of Businesses Grow in Metros, Shrink in Micros

Much of the nation’s population growth in recent decades occurred in metro areas – now home to 86% of the U.S. population.

Despite that, smaller towns still account for a significant portion of the population in many states and remain substantial contributors to the U.S. economy.

The Office of Management and Budget recognizes 382 U.S. Metropolitan Statistical Areas, defined as urban cores of at least 50,000 people and any surrounding counties that are economically linked based on commuting patterns.

But there are also 551 Micropolitan Statistical Areas (micro areas) in the United States. They’re made up of a central county with fewer than 50,000 but more than 10,000 people and include the population of any surrounding counties with strong commuting ties to the urban core.

As noted in an earlier America Counts story, 27.2 million people (8.4% of the total population) called these micro areas home in 2018. But micro area population had been on the decline and by 2020, the share of the population living in micro areas had dipped to 8%, growing just 1% since 2010.

So, what happens to business when there are such population shifts in micro areas? They usually follow the same patterns.

While the number of establishments in metro areas grew by 100,551 (1.5%) from 2017 to 2019, the number in micro areas slipped by 1,903 (0.3%). 

Of the 47 states that have at least one micro area, Texas has the most: 46.

The District of Columbia is part of a metro area and every county in Delaware, New Jersey and Rhode Island is part of a metro area and has no micro areas.

Micro areas are often adjacent to larger metro areas and can be part of a larger Consolidated Metropolitan Statistical Area. However, some micro areas stand alone, like the Elkins, WV Micro Area, which includes Randolph County.

Micro areas had 637,997 employer establishments with 8.8 million workers in 2019, according to data from the Census Bureau’s 2019 County Business Patterns program.

These businesses reported $360.4 billion in annual payroll, or an average annual payroll per employee of $40,779.

In comparison, metro areas had 6.9 million employer establishments with 113.6 million workers who earned an average $57,681 a year.

While the number of establishments grew in metro areas but declined in micros, the number of employees increased in both from 2017 to 2019: up 160,668 (1.9%) in micros and 3.5 million (3.2%) in metros. 

The average annual payroll per employee was also up for both micro and metro businesses between 2017 and 2019: 6.2% and 6.7%, respectively.

The micro area with the largest number of employer establishments in 2019 was the Claremont-Lebanon, NH-VT Micro Area with 6,487 establishments, followed by Bozeman, MT (6,009) and Traverse City, MI (4,959).

Bozeman gained the most establishments from 2017 to 2019 (341), and 328 micros saw declines in the number of employer businesses over this period.

Claremont also ranked first in the number (90,034) of employees in 2019, followed by Tupelo, MS and Concord, NH. Carlsbad-Artesia, NM gained the most workers — 3,800 from 2017 to 2019.

The types of businesses in micro areas can greatly influence wages. High-wage sectors that employ a large share of the workforce in a micro can raise wages of the whole area.

The Los Alamos, NM Micro Area, which employs many in these high-wage sectors, ranked first in average annual payroll per employee in 2019 ($90,434). Williston, N.D. ($74,029) was second, followed by Andrews, Texas ($65,749).  

Workers in the Corning, NY Micro Area saw the highest increase ($12,853) in average annual payroll per employee from 2017 to 2019.

Comparisons between employer businesses in metro and micro areas get even more interesting when we look at the North American Industry Classification System (NAICS) sector breakouts.

• For some sectors, both metros and micros grew between 2017 and 2019, but micros grew less. For example, the number of establishments in the Transportation and Warehousing sector grew 6.3% in metros and 1.7% in micros.
• For other sectors, metros were up and micros were down from 2017 to 2019. The Arts, Entertainment, and Recreation sector grew by 6.4% in metros but slipped by 0.3% in micros.
• In some sectors, both metros and micros were down from 2017 to 2019 but micros declined more. Employer Retail Trade establishments were down 1.8% in metros and 2.1% in micros.

While the number of employer businesses in metro and micro areas differed widely, the distribution of businesses by employment size was quite similar in 2019. 

Establishments with fewer than five employees made up 54.5% of all establishments in metros and 52.8% in micros in 2019, while those with five to nine employees made up 17.7% in metros and 20.6% in micros.

Growth between 2017 and 2019 across a range of business sizes was also similar for metro and micros with one major exception: large businesses with 1,000 or more employees. 

Establishments in this size range grew by 7.6% (up 471 establishments) in metro areas. Micros experienced a larger percentage gain (up 36.8%) but added just 28 establishments in this size range between 2017 and 2019.

The distribution of employer and nonemployer businesses (what we typically think of as self-employed people) in metro and micro areas was similar.

According to the Nonemployer Statistics program, there were 1.9 million nonemployer firms in micro areas in 2018 — 7.0% of the U.S. total.

These businesses reported $82.8 billion in sales (or 6.4% of total nonemployer sales), for an average sales per firm of $44,557.

In comparison, metro areas were home to 23.3 million nonemployer firms or 88.1% of the U.S. total. These businesses reported $1.2 trillion in sales (89.3% of total nonemployer sales), for an average sales per firm of $49,505.

Just like it ranked first among micro areas in the number of employer establishments Claremont-Lebanon was also first in nonemployer firms with 20,446.  Second was Hilo, HI (18,139), followed by Torrington, CT (17,272).

Claremont was also ranked first in nonemployer sales with $1.0 billion, followed by Torrington ($952.7 million) and Hilo ($847.5 million).

While the concentration of both people and businesses continues to increase more in metro than in micro or nonmetro areas, these smaller areas continue to play an important role in the American economy. 

Future data releases will tell us if the virtual work arrangements that many businesses had to adopt during the pandemic continue and what effect it will have on future business growth in nonmetro areas. If workers continue to work from home, we may see a sustained population shift from metro to micro areas with lower costs of living. Whether employers will follow remains to be seen.

Andrew W. Hait is a survey statistician/economist at the Census Bureau.