It is often claimed that cities and towns should emphasize locally-owned businesses because, in the event of an industry or regional downturn, these types of businesses are less likely to lay off workers. Kolko and Neumark use data from the National Establishment Time Series and find that this effect depends on what type of locally-owned business is being considered. Conditioning on region and industry, locally-owned chains and company headquarters showed very little employment volatility in the wake of a downturn, but single-establishment businesses – what might be considered the heart of “locally-owned business” – showed amplified effects on employment during a downturn. This suggests that if the rationale for locally-owned business is to help a region weather a poor economy, development efforts should be concentrated on company headquarters and small chains rather than on single-establishment businesses.
http://anon-ftp.iza.org/dp4415.pdf (Link to WP, final version in November 2009 JUE)