It’s no big secret that young Americans are hurting. Youth unemployment is double the national average, college debt loads and defaults are the highest in history, and only 25% of young people had traditional jobs lined up upon graduation this year.
Thankfully, alongside these chronic epidemics, another trend has emerged: the growth of entrepreneurship as a viable career path for young people.
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However, the vast majority of recent college graduates and twenty-somethings face significant hurdles when it comes to starting a business, especially when it comes to obtaining startup capital. Mind you, I’m not talking about hundreds of thousands or millions of dollars — or in most cases even tens of thousands. It takes just the few thousand dollars to start the most basic service-based businesses. But banks require collateral and credit history, a rare combination for eager upstarts. Micro-loan programs (that work as intended) are few and far between. And, in many instances, “friends and family” have their own financial woes to deal with. Bottom line: None of these sources is a reliable or scalable solutions for the vast majority of young Americans looking to join the entrepreneurial ranks.
But it seems the president’s American Jobs Act may have just the solution young people need to transition from unemployed to self-employed.
You may not have noticed it, however, because most news outlets have focused on the bill’s headline-worthy small-business benefits, such as the extensive payroll tax cuts, extension of the 100% business expensing provision, and the complete payroll tax holiday for new jobs or wage increases. As worthy of attention and praise as these provisions are, they’re inconsequential for most young and aspiring entrepreneurs. After all, in most cases, millenials are at the very beginning of — or just embarking on — their entrepreneurial journey. No, it is one of the more understated reforms that is actually the most transformative for this generation of eager doers.
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The provision I’m talking about is reform to federal unemployment insurance. (Yes, I’m serious. Hold the skepticism, please.)
Traditionally, unemployment insurance has only been made available to unemployed individuals who were actively seeking a traditional job. These funds could only be accessed for personal use; all other uses — such as starting a business — were strictly prohibited, and only job seekers qualified for these funds. Individuals with a desire to seek self-employment opportunities were ineligible for any unemployment money.
Now, imagine if aspiring entrepreneurs — individuals whose main priority is to hire themselves, build revenues and hire others to grow — had access to this sort of guaranteed startup capital. Well, under the American Jobs Act, they will.
According to Obama’s plan, all 50 states would be able to establish Self-Employment Assistance (SEA) programs, enabling aspiring entrepreneurs to utilize unemployment insurance money to fund their businesses for up to 26 weeks —providing roughly $10,000 to $13,000 in assistance, or what I would refer to as “seed funding.” Not a bad deal when you consider that the cost of most startups, especially most service-based businesses and tech ventures, have relatively low startup and operating costs. In essence, the president’s plan will create a guaranteed source of startup capital for businesses without any of the traditional credit and collateral requirements as barriers — or the need to give away equity to investors. Someone pinch me.
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This must be too good to be true, right? Or, at the very least, SEA must be some rhetoric-filled, highly impractical, totally unachievable, overly complicated government program. Actually, SEA has a proven track record of success in states that are both red and blue. According to a Department of Labor study of state self-employment assistance programs, SEA participants were 19 times more likely than eligible non-participants to be self-employed. In a handful of states where SEA programs are active, such as Arizona and Maryland, hundreds of businesses and new jobs have been created as a result. In Oregon, nearly half of the successful SEA entrepreneurs have each created an average of 2.63 new jobs.
Though this program is geared toward people of all ages who wish to start their own businesses, I would argue that young people are the best suited to maximize its advantages. Members of older generations tend to have families and other financial obligations, making it more difficult for them to transition into the roles of entrepreneurs. Young people who have fewer commitments, and therefore more flexibility, can more easily adapt to less expensive lifestyles.
Further, young people have access to a wide range of resources, such as Income Based Repayment (IBR), a program designed to make it more manageable for individuals with low incomes to repay their federal college loan debts, as well as a slew of private sector mentorship and entrepreneurship education services, such as those provided by organizations like SCORE, Startup America, and my own Young Entrepreneur Council. If these sorts of government and private enterprise solutions could be combined, and collectively our nation can increase the percentage of the population that starts companies by 1% to 2%, millions of new businesses and jobs would be created as a result, and youth unemployment would sharply decrease.
Pooling such resources would entail a collaborative effort fueled by good will and a willingness to put aside partisan views for the sake of our country’s economic future. Would this be hard to achieve? Yes. But is it impossible? Absolutely not.
While $2,000 per month may not seem like enough to feed and clothe someone, let alone capitalize a venture, serious young entrepreneurs will make it happen — as they always have — by sleeping on couches, eating ramen noodles and working 25 hours a day to get their businesses off the ground. If the American Jobs Act is passed into law, the government can help facilitate this process for the upcoming generation of entrepreneurs who may be poised to relieve the seemingly incurable unemployment epidemic affecting young and old alike throughout the nation.