Franchises led the 2021 recovery, and they’ll do it again in 2022—if policymakers let them

While the latest figures on inflation are worrisomely high, let’s look on the bright side: as the pandemic wanes, the economic recovery is clearly on full blast. No year was quite like 2021 in this respect. As the pandemic-driven restrictions loosened, Americans expressed renewed confidence in the economy, using their trillions in global savings to buy new homes, invest in the stock market, and open new businesses—many of which were franchises.

Across every sector, franchises were a significant engine powering the 2021 economic recovery. This year, we forecast that the local businesses behind recognized brands will continue to expand—unless a more consequential threat than COVID-19 materializes in the form of policies that undercut the franchise business model. Wherever they spring up, these proposals should be rejected and reversed so franchises can continue providing opportunity to Americans on every rung of the economic ladder.

The mechanics of the franchise model are well-known, its benefits less so. When independent entrepreneurs seek to open a franchised business, they sign a licensing agreement with a brand to use its name and processes to sell its products. In exchange for royalty fees, franchisees also receive valuable training and support. Because of low start-up costs and a proven business model with brand recognition, franchises are appealing to people who may traditionally be disinclined to risk it all on a business venture. Almost 31 percent are owned by people of color, compared with 19 percent of other independent businesses, and in the last year, 70 percent of brands have partnered with a veteran to open a franchise.

At every level, these businesses offer opportunities for economic and career advancement. For the aspiring entrepreneur, franchising removes barriers so she can more easily open her own business. On the other side of the Great Resignation is a great reimagination that has emboldened white collar workers and store employees alike to become owners. Franchises pay around 3 percent higher wages than similar independent companies; 65 percent of them offer health insurance, well above the national average of 49 percent

All this is why it’s very good news franchising rebounded so steeply in 2021. According to the International Franchise Association’s new report, the 2022 Economic Outlook for Franchising, output for these small businesses increased by over 16 percent in 2021, reaching nearly $788 billion. To manage this increase, the number of franchised establishments grew by nearly 3 percent, and by year’s end, 8.8 percent more people were employed by franchises than in 2020. We expect 2022 to be a year of normalization, with steadying but continued growth. Franchise employment will likely increase by another 3 percent and the number of establishments by another 2.2 percent, with the strongest growth likely in the personal services sector as Americans return to gyms, beauty parlors, and movie theaters.

This continued growth may be contingent, however, on fickle headwinds: policy proposals from state and federal lawmakers plus bureaucratic overreach that all look increasingly unfavorable for franchises. At the state level, legislation like California’s Fast-Food Accountability and Standards (FAST) Recovery Act threaten to create an unelected, unaccountable committee that can all but override the legislature on minimum wage, standard working conditions, and overtime regulations. The FAST Recovery Act would also codify joint-employer rules, in which employees are considered to work jointly for the corporate brand, not the local business with an owner they know and can communicate with directly. Joint-employer rules make it more difficult for corporations to franchise, neutering wealth creation opportunities for American’s who wouldn’t own a business without franchising. Oxford Economics reports nearly a third of franchisees wouldn’t be in business at all without the franchise support structure. This uncertainty is also taking root at the national level, as the Biden administration’s Department of Labor rescinded clear standards on joint-employer rules and proposed anti-franchising academics like David Weil to powerful positions in government.

Such unjustifiably punitive measures stand in sharp contrast to policies from just two years ago, when 75 percent of franchises accepted the lifeline of the Paycheck Protection Program and other economic relief that kept Americans working. The challenge of the pandemic cannot be overstated, but the burdens were made lighter by state and federal leaders determined to get these franchises and American workers through the storm. Now, as the crisis passes, policymakers should resist the urge to adopt a hard posture against the local businesses leading our economic recovery that stimies the career advancement they provide. The engine of the 2021 economic recovery will keep rolling into 2022, if policymakers let them.