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Microbusinesses Performed $5.6 Billion of R&D in the United States in 2020

NSF 23-305

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December 14, 2022

This InfoBrief presents research and development (R&D) and other data on microbusinesses, defined here as businesses with one to nine domestic employees. In 2020, microbusinesses reported $6.7 billion in R&D expenditures or costs in the United States (table 1), $5.6 billion of which was performed by the microbusinesses themselves. R&D costs include the amount that businesses spent of their own money and from other sources on R&D they perform, as well as the amount they paid others to perform R&D. This InfoBrief makes a distinction between all R&D costs and R&D performance costs, which are the costs only for R&D performed by the business.

Data for this InfoBrief are from the Annual Business Survey (ABS), developed and cosponsored by the National Center for Science and Engineering Statistics (NCSES) within the National Science Foundation (NSF) and by the Census Bureau. The ABS is the primary source of information on R&D expenditures by microbusinesses. Additionally, the ABS collects data related to innovation, intellectual property, technology, and business owner characteristics from both microbusinesses and companies with 10 or more employees. This InfoBrief reviews both the R&D totals for the microbusiness population and specifics for selected industries.

The ABS is a single survey that combines efforts that have historically been multiple separate business surveys: the Survey of Business Owners, the Annual Survey of Entrepreneurs, the 2016 Business R&D and Innovation Survey–Microbusiness (BRDI-M), and an innovation survey modeled on Eurostat’s Community Innovation Survey. This InfoBrief and the related full set of detailed statistical tables result from the 4th year of a 5-year collaboration between NCSES and the Census Bureau on the ABS.

Annual Business Survey aggregate R&D estimates, by questionnaire reference and employment size, for companies with 1–9 employees in selected industries: 2020

(Thousands of U.S. dollars)

r = relative standard error > 50%.

Note(s):

Detail may not add to total because of rounding. Statistics are representative of companies located in the United States that performed or funded R&D. Selected industries include 2017 North American Industry Classification System sectors 31, 32, 33, 42, and 51 and industries 5413, 5415, and 5417.

Source(s):

National Center for Science and Engineering Statistics and Census Bureau, 2021 Annual Business Survey: Data Year 2020.

Microbusiness R&D Trend

In 2020, total R&D costs were $7.5 billion, up from $7.2 billion in 2019 and $6.5 billion in 2018. Domestic R&D performance was $5.6 billion in 2020, compared with $4.5 billion in 2018—an increase of 24% over the 2-year period. (See figure 1.)

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Total R&D costs and domestic R&D performance for companies with 1–9 employees: 2018, 2019, and 2020

(Thousands of dollars)
Year Total R&D costs Domestic R&D performance
2018 6,467,338 4,526,838
2019 7,245,649 5,218,911
2020 7,522,839 5,600,668
Note(s):

Statistics are representative of companies located in the United States that performed or funded R&D.

Source(s):

National Center for Science and Engineering Statistics and Census Bureau, 2021 Annual Business Survey: Data Year 2020.

The R&D performance costs for manufacturing industries over 2018–20 increased by 13%, while nonmanufacturing industries increased by 25% (figure 2).

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Domestic R&D performance for companies with 1–9 employees: 2018, 2019, and 2020

(Thousands of dollars)
Year R&D domestic performance for manufacturing industries R&D domestic performance for nonmanufacturing industries
2018 555,676 3,971,162
2019 622,220 4,596,691
2020 627,387 4,973,281
Note(s):

Statistics are representative of companies located in the United States that performed or funded R&D.

Source(s):

National Center for Science and Engineering Statistics and Census Bureau, 2021 Annual Business Survey: Data Year 2020.

R&D by Type of Costs

In 2020, 52% of microbusiness domestic R&D costs (which include performance and non-performance expenditures) were for salaries, wages, and benefits. Outsourced R&D—payments to others for R&D, including purchasing R&D services—was 17% of total domestic R&D costs. An additional 16% of microbusiness domestic R&D costs was for such other expenses as consultants, contractors, travel, or rent. Another 10% was spent on materials and supplies, 4% on machinery and equipment, and 1% on depreciation on R&D property and equipment (table 2).

Domestic R&D costs, by selected industry and type of cost, for companies with 1–9 employees: 2020

(Thousands of U.S. dollars)

r = relative standard error > 50%.

NAICS = 2017 North American Industry Classification System.

Note(s):

Detail may not add to total because of rounding or unavailable NAICS detail for select records beyond the 4-digit industry classification. Industry classification based on dominant establishment payroll. Statistics are representative of companies located in the United States that performed or funded R&D.

Source(s):

National Center for Science and Engineering Statistics and Census Bureau, 2021 Annual Business Survey: Data Year 2020.

The composition of R&D costs varies across industries. Microbusinesses in the information sector, including software publishers (North American Industry Classification System [NAICS] 51), spent 81% of their domestic R&D expenses on salaries, wages, and benefits and expended 4% on payments to others for R&D. Scientific research and development services (NAICS 5417) spent 38% of their R&D dollars on salaries, wages, and benefits and expended 27% on payments to others for R&D.

Characteristics of Microbusiness R&D Performance

By Industry

As was the case in previous ABS surveys, microbusiness R&D is highly concentrated within a few industries. In 2020, R&D costs by microbusinesses in the United States were approximately $6.7 billion (table 1), of which $1.1 billion was for outsourced R&D and the remaining $5.6 billion (or 83%) was R&D performed by the microbusinesses themselves. Of this $5.6 billion in microbusiness R&D performance, selected nonmanufacturing industries accounted for $5.0 billion (table 3). Over two-thirds (69%) of all microbusiness R&D performance was done by microbusinesses classified by the following three R&D intensive industries: architectural, engineering, and related services (NAICS 5413); computer systems design and related services (NAICS 5415); and scientific research and development services (NAICS 5417).

Domestic R&D performed by the company, by selected industry and source of funds, for companies with 1–9 employees: 2020

(Thousands of U.S. dollars)

r = relative standard error > 50%.

NAICS = 2017 North American Industry Classification System.

Note(s):

Detail may not add to total because of rounding or unavailable NAICS detail for select records beyond the 4-digit industry classification. Industry classification based on dominant establishment payroll. Statistics are representative of companies located in the United States that performed or funded R&D.

Source(s):

National Center for Science and Engineering Statistics and Census Bureau, 2021 Annual Business Survey: Data Year 2020.

By Source of Funds

In 2020, three-fourths (76%) of microbusiness R&D performance was paid from the companies’ own funds; 16% was from federal, state, or local governments combined; 4% came from another U.S. company; and 3% was from a foreign owner (table 3). Manufacturing microbusinesses funded more than three-fourths (79%) of their own R&D performance, and selected nonmanufacturing microbusinesses funded three-fourths (75%) of their own R&D performance. There were few differences across industries. In the scientific research and development services industry (NAICS 5417), 70% of microbusiness R&D performance was self-funded and 22% was funded by federal, state, or local governments combined. In 2020, 53% of all government funding went to the scientific research and development services industry compared to 74% of all government funding in 2019.

By Type of R&D

There are three types of R&D: basic research, applied research, and experimental development. In 2020, just over half (53%) of microbusiness R&D performance was development or experimental development, while 41% was applied research and 6% was basic research (table 4). The allocation of R&D across the three types was similar between microbusinesses in manufacturing and nonmanufacturing industries.

Domestic R&D performed by the company, by selected industry and type of R&D, for companies with 1–9 employees: 2020

(Thousands of U.S. dollars)

r = relative standard error > 50%.

NAICS = 2017 North American Industry Classification System.

Note(s):

Detail may not add to total because of rounding or unavailable NAICS detail for select records beyond the 4-digit industry classification. Industry classification based on dominant establishment payroll. Statistics are representative of companies located in the United States that performed or funded R&D.

Source(s):

National Center for Science and Engineering Statistics and Census Bureau, 2021 Annual Business Survey: Data Year 2020.

By State

Five states (California, New York, Massachusetts, Michigan, and Washington) accounted for 51% of all microbusiness R&D in 2020 (table 5). California led all states in microbusiness R&D activity, accounting for 31% ($1.8 billion) of U.S. microbusiness R&D performance. This was followed by New York with 6% ($342 million) of U.S. microbusiness R&D performance and Massachusetts with 5% ($265 million).

Domestic R&D performed by the company, by state and employment size, for companies with 1–9 employees in selected industries: 2020

(Thousands of U.S. dollars)

r = relative standard error > 50%.

Note(s):

Detail may not add to total because of rounding. Statistics are representative of companies located in the United States that performed or funded R&D. Selected industries include 2017 North American Industry Classification System sectors 31, 32, 33, 42, and 51 and industries 5413, 5415, and 5417.

Source(s):

National Center for Science and Engineering Statistics and Census Bureau, 2021 Annual Business Survey: Data Year 2020.

Total Employment and R&D Employees

There were just over 39,000 domestic R&D employees (79% male, 21% female) working for microbusinesses in 2020 (table 6), and 88% of those domestic R&D employees were in the selected nonmanufacturing microbusinesses. Among all domestic R&D employees, the greatest percentages worked in the scientific research and development services industry (NAICS 5417) and in the computer systems design and related services industry (NAICS 5415), 28% and 26%, respectively.

R&D employee occupations included researchers (e.g., R&D scientists, engineers, and their managers), R&D technicians and equivalent staff, and R&D support staff (clerical and other). Among domestic R&D employees in 2020, 69% were researchers and among these approximately 27,000 researchers, 29% have PhDs. Almost 9,000 or 23% of domestic R&D employees were R&D technicians, and the remaining 3,000 or 8% were R&D support staff.

Number of domestic R&D employees, by selected industry and sex, for companies with 1–9 employees: 2020

(Number)

r = relative standard error > 50%.

NAICS = 2017 North American Industry Classification System.

Note(s):

Detail may not add to total because of rounding or unavailable NAICS detail for select records beyond the 4-digit industry classification. Statistics are representative of companies located in the United States that performed or funded R&D.

Source(s):

National Center for Science and Engineering Statistics and Census Bureau, 2021 Annual Business Survey: Data Year 2020.

Survey Information and Data Availability

In this InfoBrief, R&D costs and performance are expressed in current U.S. dollars and are not adjusted for inflation. For ABS, a microbusiness is defined as a business organization located in the United States, either U.S.-owned or a U.S. affiliate of a foreign parent company, of one or more establishments under common ownership or control, with one to nine domestic employees.

The survey was administered to companies whether or not they were known to have R&D activity. ABS collected detailed statistics from microbusinesses located in the United States on R&D expenditures, R&D employees, intellectual property, company and primary owner characteristics, and innovation activities.

Only microbusinesses (those businesses with one to nine employees) are asked the R&D questions, and only those microbusinesses are presented in this InfoBrief.

The statistics from the survey are based on a sample; as such, they are subject to both sampling and nonsampling errors (see “Technical Notes” in the data tables reports at https://www.nsf.gov/statistics/srvyabs/). Microbusinesses with less than $50,000 in R&D are excluded from the ABS national estimates and this InfoBrief.

For the full 2021 ABS, 300,000 companies were sampled to represent the population of 4.9 million companies. For the full 2021 ABS, the unit response rate was 68.8%.

The full set of data tables on R&D, company demographics, innovation, technology, and patent and intellectual property protection from this survey will be available in the report Annual Business Survey: 2021 (Data Year 2020) (https://www.nsf.gov/statistics/srvyabs/). Individual data tables and tables with relative standard errors and imputation rates from the ABS 2021 are available in advance of the full report.

Notes

1Employees are individuals who worked for the business and received a W-2 issued by the business for salary or wages.

2R&D questions were asked only of manufacturers and certain selected nonmanufacturing industries that in previous NCSES surveys (2017 ABS, BRDI-M, and Business R&D Innovation Survey) represented almost all R&D of microbusinesses in the United States.

3Kindlon A; National Center for Science and Engineering Statistics (NCSES). 2022. Microbusinesses Performed $5.2 billion of R&D in the U.S. in 2019. NSF 22-333. Alexandria, VA: National Science Foundation. Available at https://ncses.nsf.gov/pubs/nsf22333.

4As defined by the Frascati Manual (7th ed., OECD 2015) basic research is experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundations of phenomena and observable facts, without any particular application or use in view. Applied research is original investigation undertaken in order to acquire new knowledge. It is, however, directed primarily towards a specific, practical aim or objective. Experimental development is systematic work, drawing on knowledge gained from research and practical experience and producing additional knowledge, which is directed to producing new products or processes or to improving existing products or processes. See Organisation for Economic Co-operation and Development (OECD). 2015. Frascati Manual: Guidelines for Collecting and Reporting Data on Research and Experimental Development. The Measurement of Scientific, Technological and Innovation Activities. Paris: OECD Publishing.

Suggested Citation

Kindlon A; National Center for Science and Engineering Statistics (NCSES). 2022. Microbusinesses Performed $5.6 Billion of R&D in the United States in 2020. NSF 23-305. Alexandria, VA: National Science Foundation. Available at https://ncses.nsf.gov/pubs/nsf23305/.

Contact Us

Report Author

Audrey Kindlon
Survey Manager
NCSES
Tel: (703) 292-2332
E-mail: akindlon@nsf.gov

NCSES

National Center for Science and Engineering Statistics
Directorate for Social, Behavioral and Economic Sciences
National Science Foundation
2415 Eisenhower Avenue, Suite W14200
Alexandria, VA 22314
Tel: (703) 292-8780
FIRS: (800) 877-8339
TDD: (800) 281-8749
E-mail: ncsesweb@nsf.gov

NSF 23-305

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December 14, 2022