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.
