New Business Creates Most Jobs

By Barbara Kiviat | March 23, 2011 | +

Small businesses are the economy’s great job creators. Or are they? Last year a group of economists digging through new Census data, including a relatively rare measure of firm age, concluded that it’s actually young companies, especially start-ups, that drive the effect normally attributed to small firms. At least that was the take-away from looking at data from 1992 through 2005. Now the researchers—the Census’s Ron Jarmin and Javier Miranda, and University of Maryland’s John Haltiwanger—are back with a new finding. Start-ups haven’t been pulling their weight during the most recent economic recovery. The likely reason? This recession wasn’t just about slack demand, but also about a massive credit crunch. That particularly hurt young companies, the sort often financed by credit card and home-equity loan. It may also be part of the reason jobs have been so slow to return.

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http://stephenpoo.wordpress.com stephenpoo

Good to see you back
deconstructiva

Welcome back, Barbara! Guest post here or temp gig back here at Starfleet Command? Or even better, did you negotiate a new / better permanent deal for yourself? Need more of your posts here. As for credit, I wonder just how crappy the banking situation still is given today’s bad housing news (double dip?). Credit cards and HEL’s (or more accurately, HELL’s) really do help with start-ups, so do you have other links / more thoughts on lingering banking woes and recovery delay? Do banks refuse to lend from fear and loathing, or they really can’t do so due to their (self-inflicted) bad books? Thanks for your thoughts, Barbara, more of ‘em please.
beckyhayesst

I am in absolute agreement with your article.

Hiring is never as great as at the start of a new enterprise or a new unit. Opening a factory means hiring equipment operators and support, opening an office means staffing it, but if you are starting from scratch it means hiring everyone you need.

So, how do we get the money to new businesses? You can’t give tax breaks to a business that doesn’t yet exist. To bring back jobs, there are two words that mean more than anything else commonly discussed in the public sphere: seed money. Banks rarely provide entrepreneurs with seed money. Even so called small business loans are often actually home equity loans backed by the SBA and we all know what has happened to home equity. To feed the nation’s greatest engine of job creation, incentives for early stage venture capital investment need to dramatically increase. To motivate the requisite angel investors, we need to issue strong incentives, matching funds, and guarantees for those who control the trillions of dollars on the sidelines. This could drive the greatest expansion of the job market ever seen.

http://www.cannibalcapitlism.com
Barbara Kiviat

Hello! Good to see you all again. This post is a shorter version of a piece I have in this week’s magazine. Just freelance, though, I’m not back full-time.
—
Anyway, you raise a really good point, beckyhayesst. If we want to target new businesses, then suddenly the conversation is about seed money, venture capital, and angel investors. That’s much trickier terrain for government to build policy around since there’s more risk in the equation. I wonder if that’s part of the reason we default to focusing on small businesses.