Large numbers of American workers are trapped in low-wage jobs in low-tech, low-profit industries in the nontraded domestic service sector, including leisure and hospitality, retail and child and elder care. To raise wages significantly, firms would have to increase their productivity by investing in innovative technology, but their profit margins are too small for them to make the investments.
Where it is possible to reap potential benefits of increasing returns to scale in these sectors, productivity could be boosted by the replacement of small firms with larger, better-capitalized businesses. But it is also possible for small firms to enjoy the benefits of scale by collaborating with other firms in some pre-competitive areas, while competing in others. Problems of collective action and the need for limited waivers of antitrust laws mean that only the government can be the catalyst that can free many small businesses from a low-productivity, low-wage equilibrium.
In a new policy brief from the Information Technology and Innovation Foundation (ITIF), “Small Business Boards: A Proposal to Raise Productivity and Wages in All 50 States and the District of Columbia,” we propose a new federal-state program under the auspices of the Small Business Administration (SBA): the Small Business Board (SBB) program. Beginning with the most technologically backward and lowest-paying sectors, each state that chose to do so would receive federal matching grants to create a Small Business Board in a particular sector. The SBB would sponsor projects that could include collaboration on research and development and production technology modernization, together with shared vocational training, health insurance plans and minimal wages and benefits. Successful precedents for this approach can be found in the U.S. agricultural extension program that has brought generations of productivity advances to America’s small farmers, the Agricultural Marketing Act of 1937, the Manufacturing Extension Program of the National Institute of Standards and Technology (NIST), and others.
Read the entire report here: Small Business Boards: A Proposal to Raise Productivity and Wages in All 50 States and the District of Columbia