While the number of net jobs gained typically measured as a few hundred thousand, that number masks a much larger churn on jobs gains and losses. For example, in the third quarter of last year, the latest data available, there were nearly 7 million jobs created—or roughly 107,000 new jobs created every workday—from new businesses starting up or expansion of existing businesses. But those jobs were offset by roughly 100,000 jobs a day that were destroyed by businesses cutting back or shutting down.
Like the growth of the economy overall, the pace of job creation and destruction has ebbed and flowed over the last two decades. After a surge in entrepreneurship during the late ’90’s dot-com boom, the pace of job creation hit 8.8 new jobs in the first quarter of 2000—offset by the loss of roughly 8 million that were destroyed.
Even in the depths of the Great Recession, the economy continued to produce millions of jobs a month—though the pace of job destruction was much greater. Since then, the levels of both job gains and losses hasn’t recovered. And the slowdown has hit small businesses hardest
The decline in small business job creation has multiple causes and has been underway for years, but economist are divided on the causes. Small business advocacy groups cite and expanding thicket of government regulation, from permitting paperwork to the mandate to provide health insurance for workers.
“If you look at all of these government policies, they’re all pointed against growth and against entrepreneurship,” said Raymond Keating, chief economist with the Small Business and Entrepreneurship Council.
But other economist argue that there are more important forces at work depressing new business formation to the lowest levels in the past decade. Self-employment—a bellwether for entrepreneurship —is also depressed from historical levels.
Hathaway, who is based in Silicon Valley, said government red tape doesn’t seem to have slowed the pace of tech-based start-ups.
“Nobody here is thinking about regulations,” he said. “So the regulation theory in my opinion is completely overblown.”
But financing a new company has gotten a lot harder, he said, as venture capitalists have gotten a lot choosier about where they place their bets.
So have more traditional lenders that once provided the capital to get a new company off the ground. That is why alternative lenders have been rushing in to fill a void in the market over the last five years. Crowdfunding sites like Kickstarter and Indiegogo have been doling out money for start-ups and expansion capital for entrepreneurs. So have credit unions across the country. Increasingly they are getting in the business of offering small business loans to local businesses in their communities to help support Main Street.
But gone are the days when an aspiring entrepreneur could self-finance a garage-stage business overnight with a credit card or a home equity loan.
“Credit cards home equity lines are huge for small businesses getting off the ground,” said Kelly. “And that’s been a major change and an obstacle that start-ups now face.”
Whatever the cause, the decline in the formation of new businesses is a troubling sign for the health of the U.S. job market and over economy. The churn of jobs—as they’re destroyed by older companies and created by new ones—may be disruptive to the workers involved. But that churn—economist call it business dynamism—is essential to the long-term health of a growing economy.
“If I leave my job to get a better one and a younger less experienced person takes my old job, there’s a cost to that disruption, said Hathaway. But overall that’s a net positive. It’s a more efficient allocation of labor.”
The decline of that dynamism helps explain why—five years into one of the weakest recoveries on record—the pace of U.S. job creation is proceeding at a painfully slow pace
“When we’re healthy—when our economy is doing well—you see that dynamism,” said Keating.” “People are experimenting and trying things; some businesses work, some businesses don’t. But that’s when Americans doing really well. “
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