Rising Entrepreneurship Reflects Poor Job Prospects

Posted by: John Tozzi on March 7, 2011

More people are starting businesses but fewer of them are hiring employees, according to a report released today by the Kauffman Foundation.

The report shows a jump in new businesses formed by those with the slimmest employment prospects, such as people without high school diplomas and workers in the construction industry.

“That’s counterintuitive. Construction bore the brunt of the recession,” says Dane Stangler, research manager at Kansas City (Mo.)-based Kauffman. What happened, he says, is that people laid off in the construction industry have few other options for generating income than attempting to start their own one-person businesses. The growth in startup rates also skews toward men and older workers.

Even as the overall startup rate is increasing, the share of people starting companies that employ other workers is falling. Between 2007 and 2010, the percentage of people who started businesses each month increased from 0.30 percent to 0.34 percent, while the percentage of people who started new employer firms each quarter dropped from 0.13 percent to 0.10 percent. (The data is from surveys by the Census and Bureau of Labor Statistics.)

Study author Robert Fairlie, an economist at University of California, Santa Cruz, writes:

These opposing trends may be due to the Great Recession and its high unemployment rates pushing many individuals into business ownership. These individuals probably were more likely to start sole proprietorships and other non-employer firms instead of starting more costly employer firms.

Even with the overall startup rate elevated, Stangler says the trend of entrepreneurship driven by necessity is a “very disturbing and discouraging picture.”

The report also found that immigrants and Latinos recorded large increases in the rate of entrepreneurship during and after the recession.

Reader Comments

andyswebtools

March 7, 2011 10:38 AM

With the rise of self-entrepreneurs and small businesses come better job prospects. The bad economy spurred a rise in self-starters, but in 2011, the rise of small businesses will spur job growth.
http://bit.ly/gavLk8

Karlene Sinclair-Robinson

March 7, 2011 2:18 PM

It is important to realize that these individuals find themselves in a situation where they had to create a way out instead of waiting for help to come. When people are in a survival mode, all they can think about is keeping them afloat and not looking to create jobs. Creating jobs would be great but if each person in the unemployment line could figure out a way to generate their own income, then we would not have so many people seeking assistance.

So, however you look at it, if they are creating sustainable work for themselves that is great. If at some point, they can conceive to create even a 1/2 time position or hire 1 full time employee, of course the number of unemployed would shift.

Let's be realistic though, would we prefer they do nothing or create something to help them financially?

Hilary

March 7, 2011 6:16 PM

John, thanks for taking a hard look at the Kauffman Foundation's recent entrepreneur report. You highlight an interesting point that this increased trend of entrepreneurship is being driven out of necessity, given the current job state. I work with the Campaign for Free Enterprise, a project of the U.S. Chamber of Commerce, and we advocate for the free enterprise system, which enables entrepreneurship. Our goal is to provide information and tips for entrepreneurs so they have every chance to succeed. We recently launched the Center for Entrepreneurship to learn from and advocate for entrepreneurs.

I hope you'll check out the Center at http://www.freeenterprise.com/center/ and join the conversation on our Facebook page at http://www.facebook.com/AmericanFreeEnterprise

-Hilary, freeenterprise@uschamber.com

Fan Bi

March 9, 2011 1:10 PM

Better or worse, I have to agree with Ms Sinclair-Robinson that it's encouraging that these individuals are taking a proactive approach.

Ed

March 22, 2011 1:46 PM

Two other factors are at work here.

One, many companies have policies not to hire workers who have been unemployed for more than six months.

Two, many companies have policies that discriminate against workers who are over 50 years old. (I know that this is supposed to be illegal but it very common).

Since many companies do both of the above, workers who start their own companies are in a survival mode. The companies who complain about this have only themselves to blame.

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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