Small Shops Shaping Minnesota

By Amanda Blaschko
December 2025

Summary:

Small businesses, defined here as those firms with fewer than 20 employees, are the foundation of Minnesota's economy.  In 2023, these firms represented nearly 89% of all establishments and employed 17.8% of the state's workforce. While their overall employment share has declined since 1995, the number of small business jobs has continued to grow. After the pandemic, small businesses led Minnesota's job recovery and continue to play a vital role in the state. These firms thrive in industries focused on personalization and local expertise, even though wage growth has trailed that of larger employers.

The 20-employee threshold differs from the U.S. Small Business Administration's standard, which classifies businesses with up to 500 employees as small. However, fewer than 20 employees better reflect the locally owned businesses that shape the character of Minnesota's communities and foster personal connections between owners and customers.

Key Points:

• Small businesses made up 88.9% of all establishments in Minnesota in early 2025, generating $9.58 billion in quarterly wages.
• From 1995 to 2023, small business jobs grew by 13.6%, even as their share of total employment declined slightly.
• Employment growth since the pandemic has been strongest among small firms, which increased by 4.5% compared to 2019, while large firms remain below pre-pandemic levels.
• Greater Minnesota depends more heavily on small businesses, with rural regions showing 23–30% of total employment compared to just 15% in the Metro area.
• Small businesses are most common in service-oriented and specialized industries such as repair services, personal care, construction, and agriculture, although their wages remain lower than those at larger companies.

The Significance of Small Businesses

Small businesses, defined in this analysis as establishments with 0-19 employees, are vital contributors to job creation and economic growth across Minnesota's communities. In the first quarter of 2025, these operations represented 88.9% of all establishments (182,171) in the state, generating $9.58 billion in total quarterly wages that fueled Minnesota's economy. Beyond raw numbers, these enterprises shape the character of our Main Streets, provide essential services that larger corporations sometimes overlook, and create pathways to entrepreneurship for many Minnesotans. This article examines small business characteristics using Quarterly Workforce Indicators¹ for private businesses, analyzing trends across regions, industries, and wage patterns.

In 2023, Minnesota ranked 30th among all states, the District of Columbia, and Puerto Rico with 17.8% (449,230 jobs) of its employment coming from businesses with 0-19 employees (Figure 1 & Figure 2). The distribution of small business employment varies significantly across the country, with more rural western states showing the strongest presence of smaller firms. In fact Montana and Wyoming, where nearly one-third of all employment stems from small businesses, lead the nation. At the opposite end of the spectrum, states like Arizona, Tennessee, and Indiana report the lowest percentages of employment at small businesses, ranging from just 14.3% to 14.8%. Minnesota's mid-range ranking reflects our unique mix of urban hubs with corporate headquarters and rural areas with strong entrepreneurial traditions.

When examining Minnesota's small business sector over time, an interesting pattern emerges. While small businesses have maintained a consistent presence in Minnesota's economy, their share of total employment has shifted from 20.1% in 1995 to 17.8% in 2023. Despite this proportional decline, the actual number of small business jobs has grown by 13.6% during this period, adding 53,792 jobs to the state's economy.

This long-term resilience was particularly tested during the pandemic. From 2019 to 2020, large firms (500-plus employees) weathered the storm best with just a -4.4% employment decline, while mid-sized businesses (250-499 employees) suffered the most at -10.3%. Among smaller operations, those with 20-49 employees saw the steepest drops (-6.7%), followed by businesses with 0-19 employees (-6.1%), while medium-small businesses (50-249 employees) showed more stability (-5.2% decrease).

But the recovery period tells a story of small business significance. Since the pandemic, small businesses have led the rebound with impressive 4.5% employment growth compared to 2019 levels. Businesses with 20-49 employees followed closely at 4.1% growth, while medium-sized firms (50-249 employees) showed more modest gains at 1.9%. In contrast, larger operations continue to operate differently: companies with 500-plus employees remain -1.2% below their pre-pandemic employment figures, while mid-sized businesses (250-499 employees) lag significantly at -7.2% below 2019 levels. This growth pattern has reshaped Minnesota's employment distribution, with small businesses gaining market share (from 17.1% to 17.8%) while large businesses saw their share decrease from 48.5% to 47.7% from 2019 to 2023.

Regional Patterns & Rural Strength

Greater Minnesota depends more heavily on small businesses than the Metro area (Figure 3). As of 2023, the Northwest region led the state with small businesses accounting for 29.5% of total employment, more than double the Twin Cities Metro region's 14.8% share. Central (23.9%), Southwest (23.6%), and Northeast (22.3%) regions all maintained small business employment shares above 20% as well, while the Southeast region fell between urban and rural levels at 17.0%. In Greater Minnesota, small businesses create economic opportunity by adapting to local needs, yet recovery from the pandemic has varied across planning regions in the state.

The regions hit hardest during the pandemic initially have struggled most to rebuild. The Northeast (-8.0%) and Southeast (-7.2%) regions experienced the steepest employment declines from 2019 to 2020, yet by 2023, they showed the weakest overall recovery at just 0.2% and 0.3% above 2019 levels. In contrast, Central Minnesota, which suffered a relatively modest initial decline (-4.3%), achieved the strongest recovery at 5.9% above pre-pandemic levels, closely followed by the Northwest (5.7%) and Metro (5.5%) regions.

Looking beyond regions, Minnesota's small businesses show striking differences at the county level. While businesses with 0-19 employees employ 17.8% of workers statewide, individual counties have great variation, ranging from just 10.6% to an impressive 58.2% of county employment (Figure 4). The data indicates a clear population-based pattern: counties with populations under 40,000 average around one-third (32.9%) of employment in small businesses, compared to one-quarter (23.7%) in counties with 40,000-100,000 residents, and less than one-fifth (19.6%) in counties exceeding 100,000 residents.

Traverse County, the least populated county in the state, leads with 58.2% of employment in small businesses, followed by Cook County (55.4%; 8th least populated) and Marshall County (52.5%; 15th least populated). These counties with populations under 25,000 exemplify how small businesses often form the backbone of less populated areas where large employers are less common.

In contrast, the state's more densely populated areas show significantly lower small business employment percentages. Olmsted County, home to Rochester, reports just 10.6% of employment in small businesses, while Hennepin County and Ramsey County follow at 12.6% and 14.2%. This reflects the greater concentration of large employers in metropolitan regions.

While the population-based pattern is strong, there are notable exceptions. Some less populated counties have surprisingly low small business employment, like Pennington County (14.1% despite a population under 14,000). This likely indicates the presence of a large employer, as well as national chains or large corporations with local branches, whose employees are counted under the larger firm size categories based on the company's total nationwide workforce. Conversely, Sherburne County stands out with 30.7% small business employment despite having over 102,000 residents, suggesting a stronger presence of truly local businesses that don't have large national operations, contrary to the general population-based trend.

Small, Specialized & Service-Oriented

Minnesota's small business distribution shows variations across industry sectors, with certain industries dominated by small establishments while others are predominantly controlled by large corporations. Small businesses thrive in sectors built on personalization, specialization and local expertise.

Other Services leads all sectors with 51.0% of employment coming from small businesses in Minnesota. This diverse category encompasses establishments engaged in activities such as equipment repair, personal care services and civic organizations. Agriculture, Forestry, Fishing and Hunting follows closely at 49.4%, reflecting the continued importance of family farms and small agricultural operations throughout Minnesota's rural communities.

Construction (38.1%) and Real Estate and Rental and Leasing (32.7%) also show strong small business representation, emphasizing how these industries continue to provide viable opportunities for independent contractors, small firms and local operations. These sectors benefit from the direct client relationships and specialized expertise that small businesses provide.

The Arts, Entertainment and Recreation sector shows substantial small business employment at 30.1%, while Accommodation and Food Services maintains a strong small business presence (24.5%) as well, though this sector shows a more balanced distribution across business sizes, with mid-sized establishments (20-49 employees) accounting for nearly the same proportion (24.9%) due to chain restaurants and hotel brands.

In contrast, certain sectors show minimal small business presence, reflecting where economies of scale and large capital investments create significant barriers to entry. Most notably, Management of Companies and Enterprises has just 1.9% of employment in small businesses, with 88.1% concentrated in large establishments – typically at corporate headquarters. Utilities (4.2%) and Manufacturing (8.0%) similarly show limited small business representation.

The Health Care and Social Assistance sector, Minnesota's largest job provider, shows moderate small business representation at 11.3%, reflecting diversity where independent practitioners and small clinics operate alongside large hospital systems and healthcare facilities. Similarly, Finance and Insurance (11.8%) and Information (13.5%) maintain a balance where small businesses play an important though not dominant role.

When examining more specific industry categories, we uncover even more pronounced variations, revealing niche sectors where small establishments play an outsized role. The pattern is clear: small businesses dominate where work requires personalization, specialized skills or deep local knowledge.

Service-oriented industries lead this trend. Scenic and Sightseeing Transportation leads at 98.3% of employment in small businesses, followed by Private Households at 97.9% (Figure 5). The Private Households industry includes nannies, housekeepers, gardeners and personal caregivers employed directly by households, exemplifying how personalized service work naturally operates on a small scale. Similarly, Repair and Maintenance services (60.7%) and Personal and Laundry Services (52.4%) show how hands-on, consumer-facing work benefits from the direct owner involvement and community connections that small businesses provide.

Specialized trades and natural resource industries also demonstrate high small business representation. Fishing, Hunting and Trapping reaches 95.5% while Forestry and Logging was at 77.6%, emphasizing how these specialized industries remain dominated by small, often family-run operations. Construction-related sectors like Construction of Buildings (40.9%) and Specialty Trade Contractors (39.7%) thrive as small businesses as well, where project-based work and client relationships favor smaller operations.

Even within manufacturing, specialization creates opportunities for small businesses. While most manufacturing shows limited small business presence, niche sectors like Apparel Manufacturing (40.2%) maintain higher representation, demonstrating how specialized production can remain viable at smaller scales.

Perhaps more than any other industry, Retail Trade shows interesting variations. Specialized retail niches maintain significant small business presence, with Sporting Goods, Hobby, Musical Instrument, Book and Miscellaneous Retailers showing 37.9% small business employment, compared to just 2.9% for General Merchandise Retailers, highlighting how specialty retail continues to offer opportunities for small, independent businesses despite the dominance of large chains in general merchandise.

Small Business, Smaller Paychecks?

Small business wages in Minnesota have grown more slowly than wages at larger companies, but that overall trend obscures important differences. Within the small business sector, wages vary widely depending on industry and location.

In 1995, the wage gap between employees at small businesses and those at the largest companies (500-plus employees) stood at $800 per month, representing a 41.0% difference (Figure 6). By 2023, this gap had expanded dramatically to $3,336 per month, or an 81.7% difference. Small businesses experienced 109.4% average monthly wage growth ($1,950 to $4,083) since 1995, while large businesses (500-plus employees) experienced 169.8% growth ($2,750 to $7,419). Mid-sized businesses with 50-249 employees and 250-499 employees also showed stronger growth rates of 143.1% and 171.4%.

This widening gap reflects structural advantages larger employers have in increasing compensation, including greater access to capital, economies of scale and ability to offer comprehensive benefits packages. However, cost of living is typically lower in rural areas where small businesses dominate, partially offsetting the wage differential for workers in these communities.

Beyond comparing small to large businesses, significant wage differences exist within the small business sector itself, shaped primarily by industry and geography. In 2023, monthly wages in small businesses ranged from $9,190 in Management of Companies to just $1,782 in Accommodation and Food Services, a fivefold difference. This gap between the highest-paying and lowest-paying industries has widened significantly over time. In 1995, the difference between the top and bottom industries was $3,674 per month, but by 2023, that gap had doubled to $7,408 per month.

Some industries saw impressive wage growth in small businesses, while others lagged significantly behind. Real Estate and Rental and Leasing experienced the strongest growth at 193.2%, with average monthly wages jumping from $1,569 to $4,600. This dramatic increase likely reflects Minnesota's robust real estate market and rising property values over the past three decades. Accommodation and Food Services (+181.1%; +$1,148) and Information (+176.7%; +$3,983) followed with similarly impressive gains, suggesting these industries successfully adapted to changing consumer demands and technology or have raised wages to attract new workers.

However, not all industries kept pace. Small businesses in the Health Care and Social Assistance industry had the lowest growth of any industry at just 40.8%, with average monthly wages increasing from $2,496 in 1995 to $3,514 in 2023. While this sector started in the middle of the wage distribution in 1995, by 2023 it had fallen near the bottom. This decline may reflect pressures that small healthcare providers face competing with large and consolidating healthcare and hospital systems, increasing administrative burdens and insurance reimbursement challenges that limit their ability to raise wages.

The COVID-19 pandemic amplified these industry differences. From 2019 to 2020, three industries experienced wage decreases: Mining, Quarrying and Oil and Gas Extraction (-5.2%), Health Care and Social Assistance (-1.8%) and Accommodation and Food Services (-1.1%). These sectors faced distinct pandemic-related challenges. Small healthcare practices struggled as non-emergency procedures were postponed and patient visits declined sharply. Accommodation and Food Services businesses confronted direct operational restrictions with capacity limits and indoor dining prohibitions.

Thankfully, all small business industries rebounded following the pandemic, but at dramatically different rates. Accommodation and Food Services led the recovery with a 33.2% increase (+$444), while Mining, Quarrying and Oil and Gas Extraction saw more modest growth at 3.5% (+$199). The sharp increases in hospitality wages reflect how small businesses in that sector responded to labor shortages by competing more aggressively for workers, successfully attracting employees back to the industry.

Geography adds another dimension to small business wage variation. Small businesses in the Twin Cities Metro pay 23.5% to 31.9% more than those in other planning regions across all industries. Northeast Minnesota experiences the largest wage gap compared to the Metro area ($1,496), while Central Minnesota shows the smallest ($1,101).

Small Business Summary

Small businesses shape Minnesota's economy in different ways across regions and industries. They play a much larger role in Greater Minnesota than in the Metro area, and they thrive in industries built on personalization and specialization like personal services, repair services, retail and health care. While all regions have recovered from the pandemic, the paths back have been uneven, and wage growth in small businesses has lagged behind larger employers. Yet this wage gap exists within a broader context of regional cost-of-living differences and the distinct value small businesses bring to their communities.

Overall, small and large businesses each bring different strengths to Minnesota's economy. Small businesses excel at community connection, personalized service and creating local ownership opportunities. Throughout Minnesota, they anchor local economies and provide jobs close to home.

Footnotes

¹This analysis uses Quarterly Workforce Indicators (QWI) from the U.S. Census Bureau. In QWI data, businesses are categorized by their national firm size, not by local establishment size. For example, a national restaurant chain with thousands of employees across the country might have only 10 workers at a small-town location, but those 10 jobs would be counted in the "500+ Employees" category based on the company's total nationwide workforce as of March 12th of the previous year. Conversely, when employment is reported in "businesses with 0–19 employees," it reflects jobs at companies whose total employment across all locations nationwide falls within that small business size range.