Small Businesses Not Hiring

Businesses starting smaller, creating fewer jobs: study

On Monday July 11, 2011

By Lucia Mutikani

WASHINGTON (Reuters) – New businesses are starting leaner and with fewer employees than was the case in the past, an independent study showed on Monday, suggesting that the pace of job creation will remain frustratingly slow.

The study by the Kauffman Foundation found that this trend was already entrenched well before the 2007-09 recession, which destroyed more than 8 million jobs.

Startups are key to long-term employment growth. The study drew on data on new establishments from the Bureau of Labor Statistics and the Census Bureau to paint a bleak picture of an economy struggling to generate enough jobs to absorb the 14.1 million unemployed Americans.

Job growth has stalled in recent months, with employers adding a scant 18,000 workers to their payrolls in June and the unemployment rate ticking up to 9.2 percent from 9.1 percent in May. Nonfarm employment increased a meager 25,000 in May.

“One of the major problems that we have is that businesses have been starting smaller and growing less for the last several years,” said E.J. Reedy, a Kauffman Research fellow and co-author of the study.

“That jobs deficit has accumulated and needs to be addressed,” he told Reuters, noting that new businesses were struggling to grow in the first five years.

Prior to the recession, roughly 45-50 percent of start-ups survived. But the survival rate has dropped below 45 percent.

The study found that new firms created in 2009 were on track to create one million fewer jobs in the next decade than historical averages. Historically, new firms in the United States generate about 3 million new jobs every year, but have since downshifted, creating only 2.3 million jobs in 2009.

JOBS DEFICIT

The study’s analysis of the Census Bureau’s data found that the number of new employer businesses had dropped 27 percent since 2006.

Although the level of startups has held steady or even edged up since the recession, when including new employer businesses and newly self-employed workers, it said they did not grow enough to generate the new jobs needed to support overall economic growth.

Its analysis of BLS data shows employment at new businesses dropped from a peak of 4.7 million jobs annually between 1997 to 2000 to less than 2.5 million in 2010.

At the firm level, the decline is more dramatic. New businesses opened their doors with about 7.5 jobs on average for much of the 1990s, the study found. But the number has dropped to 4.9 jobs.

Similar findings are deduced from the Census Bureau data. Aggregate employment at new establishments peaked in 2006 at just under 7 million jobs and dropped to fewer than 4.5 million by 2009.

An examination of the Census Bureau’s data on new independent firms showed a 700,000 decline in jobs created between 2008 and 2009.

“While the recession certainly deepened the jobs deficit, the U.S. economy stopped producing enough new jobs well before the downturn,” said Robert Litan, Kauffman Foundation vice president of research and policy and study co-author.

“Startups are the key to long-term employment growth, and they have been hiring fewer people for the last several years. We won’t fix our core unemployment problem in the United States until young businesses get back on track.”

The study recommended that policymakers focus on young and small businesses to address the nation’s unemployment problem, and it cautioned against hoping that the growing ranks of self-employed workers will solve the jobs shortfall.

“We need to find a way to start more employer businesses, ensure that they are larger and nurture their growth,” Litan said.

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Clean Tech Can Lead an American Jobs Resurgence

David Griffith’s Note: America‘s share of advanced battery production is soaring and could be as much as 40% of world output in 5 years – this is a bandwagon we need to get behind to propel job growth in this country and restart our economy.

Electric Cars a “Win-Win” for America, Former Gov. Granholm Says

By Stacy Curtin | Daily Ticker

The June jobs report was shockingly abysmal. Only 18,000 jobs were created last month and the unemployment rate ticked up from 9.1% in May to 9.2%. (See: June Jobs Report: the Ugly, the Ugly, and the Ugly)

Jennifer Granholm, former Governor of Michigan and now a senior adviser to the Pew Clean Energy Campaign, has a solution: Invest in clean energy solutions like the electric car, which in turn will create thousands of auto and advanced battery manufacturing jobs.

Today, electric cars like the Chevy Volt costs thousands of dollars more than a regular gas-powered vehicle, making them uneconomical for many Americans — even with a tax credit of up to $7,500. All that could change by 2017 according to Granholm, who cites a projection by Energy Secretary Steven Chu. But price parity and new jobs are all contingent on more investments and subsidies to help jump-start technological advancements in the lithium ion batteries — the batteries that go into electric cars.

“Remember the cost of computers? Remember the cost of cell phones before they were able to benefit from technological advances and commercialize [and] take those technologies to scale?,” she asks Aaron in the accompanying interview. “Already the battery costs have dropped 50% since they were introduced a few years ago…[and] Michigan is expected to create 63,000 [related] jobs by the year 2020.”

During his Twitter town hall on Wednesday, President Barack Obama echoed Granholm’s enthusiasm for clean energy investments and highlighted the great strides the country has already made in the battery sector.

“When I came into office, advanced batteries, which are used, for example, in electric cars, only accounted for 2 percent of the world market in advanced batteries. And we have quintupled our market share, or even gone further, just over the last two years,” he said. “And we’re projecting that we can get to 30 to 40 percent of that market. That’s creating jobs all across the Midwest, all across America.”

For Granholm, supporting the electric car industry is not only a win for American jobs, it is a win for the country’s national security and energy independence.

Housing Bubble Crushes American Middle Class

How the Bubble Destroyed the Middle Class

by Rex Nutting
Friday, July 8, 2011

Commentary: Sluggish growth is no mystery: No one has any money

A lot of people say they are deeply puzzled by the slow recovery in the U.S. economy. They look at the 9+% unemployment rate and the mediocre growth in national output, and they scratch their heads and wonder: Where is the boom that inevitably follows a deep bust, such as we experienced in 2008 and 2009?

But there is no mystery. What other result would you expect from the financial ruin of the once-great American middle class?

And make no mistake, the middle class has been ruined: Its wealth has been decimated, its income isn’t even keeping pace with inflation, and its faith in the American economy has been shattered. Once, the middle class grew richer each year, grew more comfortable, enjoyed a higher living standard. It was real progress in material terms.

But that progress has been halted and even reversed. In some respects, the middle class has made no progress in a generation, or two.

This isn’t just a sad story about a few losers. The prosperity of the middle class has been the chief engine of growth in the economy for a century or more. But now our mass market is no longer growing. How could it? The middle class doesn’t have any money.

There are a hundred different ways of looking at the economy, and a million different statistics. But if you wanted to focus on just one number that explains why the economy can’t really recover, this is the one: $7.38 trillion.

That’s the amount of wealth that’s been lost from the bursting of housing bubble, according to the Federal Reserve’s comprehensive Flow of Funds report. It’s how much homeowners lost when housing prices plunged 30% nationwide. The loss for these homeowners was much greater than 30%, however, because they were heavily leveraged.

Leverage is an amazing thing: When prices go up, the borrower gets all the gains. And when prices go down, the borrower takes all the losses. Some families lost everything when the bubble collapsed, others lost very little. But, on average, American homeowners lost 55% of the wealth in their home.

Most middle-class families didn’t have much wealth to begin with — about $100,000. For the 22 million families right in the middle of the income distribution (those making between $39,000 and $62,000 before taxes), about 90% of their assets was in the house. Now half of their wealth is gone and it will never come back as long as they live.

Of course, rich folk lost lots of wealth during the panic as well. Their wealth is mostly in paper not bricks — stocks, bonds, mutual funds, life insurance. The market value of those assets fell further than home prices did during the crash, but they’ve mostly recovered their value now. The S&P 500 (^GSPC – News) lost 56% of its value when it crashed, but it’s doubled since then. Stocks are down about 13% from peak.

The rich recovered; the rest of us didn’t.

If losing half your meager life savings weren’t bad enough, the middle class has also been falling behind in terms of income for decades. Families in the middle make most of their money the old-fashioned way: Working their fingers to the bone for 40 years for wages and a modest pension.

Their wages have been flat after adjusting for inflation. In the late 1960s, the 20% of families right in the middle were earning almost their full share of the pie: they had 17.5% of total income. Their share has been falling steadily ever since. Now, that 20% is earning just 14.6% of all income. Meanwhile, the top 5% captured a growing share, going from 17% in the late 1960s to 22% today.

The housing bubble was the last chance most middle-class families saw for grasping the brass ring. Working hard didn’t pay off. Investing in the stock market was a sucker’s bet. But the housing bubble allowed middle-class families to dream again and more importantly to keep spending as if they were getting a big fat raise every year.

I don’t think we’ve quite grasped how much the bubble distorted the economy in the Oughts, and how much it continues to distort it today. We’re still paying the bills from that binge.

During the last expansion from 2003 to 2007, according to an analysis by Fed economists, American homeowners took $2.3 trillion in equity out of their homes through cash-out refinancing and home-equity loans, and they spent about $1.3 trillion of it on cars, boats, vacations, flat-screen televisions and shoes for the kids.

All that spending circulated through the economy, creating millions of jobs here and in China, where they make those TVs and shoes.

During that period, the economy grew at an annual average rate of 2.7%, which is about typical for our economy. But growth would have been closer to 2% if we hadn’t had a housing bubble; if we hadn’t had the extra consumption financed by the bubble and if we hadn’t built millions of surplus homes. That’s a huge difference. At 2.7%, the economy can create a significant number of jobs. But 2% is stagnation, not even keeping pace with population growth and productivity improvements.

Now that the bubble has burst, homeowners are putting money INTO their homes, not taking it out. The impulse to pay down the mortgage and the credit card is reducing the amount of money we’re spending on other things. Since 2007, instead of taking $2 trillion out of their house, homeowners have put $1.3 trillion into them.

You think that might be having an impact on consumer spending?

Even with trillions in debt being paid off or written off, very little progress has been made in deleveraging. The debt-to-disposable income ratio has slipped from 130% at the height of the bubble to 115%, but that’s still far more than the 90% recorded in 2000 or the 80% of 1989 or the 60% of 1976. No one knows how far it needs to fall before American families are comfortable with how much they owe.

The slow growth in the economy is no mystery: Most families don’t have any extra money to spend. It will take a long time for the middle class to rebuild its wealth, especially if we don’t find some work.

The crazy thing is that our leaders aren’t even talking about this crisis. With the upper classes prospering and global markets booming, they don’t need the U.S. middle class any more. The market is up, profits are soaring, and the corporate jet is fueled and ready for takeoff.

And if the middle class can’t buy bread? Let them eat cake.

 

Getting America Back to Work

In Wreckage of Lost Jobs, Lost Power

NY TIMES

DAVID LEONHARDT, On Wednesday January 19, 2011

Alone among the world’s economic powers, the United States is suffering through a deep jobs slump that can’t be explained by the rest of the economy’s performance.

The gross domestic product here — the total value of all goods and services — has recovered from the recession better than in Britain, Germany, Japan or Russia. Yet a greatly shrunken group of American workers, working harder and more efficiently, is producing these goods and services.

The unemployment rate is higher in this country than in Britain or Russia and much higher than in Germany or Japan, according to a study of worldwide job markets that Gallup will release on Wednesday. The American jobless rate is also higher than China’s, Gallup found. The European countries with worse unemployment than the United States tend to be those still mired in crisis, like Greece, Ireland and Spain.

Economists are now engaged in a spirited debate, much of it conducted on popular blogs like Marginal Revolution, about the causes of the American jobs slump. Lawrence Katz, a Harvard labor economist, calls the full picture “genuinely puzzling.”

That the financial crisis originated here, and was so severe here, surely plays some role. The United States had a bigger housing bubble than most other countries, leaving a large group of idle construction workers who can’t easily switch industries. Many businesses, meanwhile, are reluctant to commit to hiring workers out of a fear that heavily indebted households won’t spend much in coming years.

But beyond these immediate causes, the basic structure of the American economy also seems to be an important factor. This jobless recovery, after all, is the third straight recovery since 1991 to begin with months and months of little job growth.

Why? One obvious possibility is the balance of power between employers and employees.

Relative to the situation in most other countries — or in this country for most of the last century — American employers operate with few restraints. Unions have withered, at least in the private sector, and courts have grown friendlier to business. Many companies can now come much closer to setting the terms of their relationship with employees, letting them go when they become a drag on profits and relying on remaining workers or temporary ones when business picks up.

Just consider the main measure of corporate health: profits. In Canada, Japan and most of Europe, corporate profits have still not recovered to precrisis levels. In the United States, profits have more than recovered, rising 12 percent since late 2007.

For corporate America, the Great Recession is over. For the American work force, it’s not.

Unfortunately, fixing the job market will take years. Even if job growth accelerated to the rapid pace of the late 1990s and remained there, the unemployment rate would not fall below 6 percent (which some economists consider full employment) until 2016. We could now be in only the first half of the longest stretch of high unemployment since World War II.

The best way to put people back to work is to lift economic growth. For Washington, lifting growth will first mean avoiding the mistakes of 2010, when the Fed, the White House and some members of Congress prematurely assumed that a solid recovery was under way. The risk this year is that they will start reducing the budget deficit immediately by cutting federal programs, rather than having the cuts take effect in future years.

Policy makers could also help the unemployed by spreading economic pain more broadly among the population. I realize this idea may not sound so good at first. Who wants pain to spread? But the fact is that this downturn has concentrated its effects on a relatively narrow group of Americans.

In Germany and Canada, some companies and workers have averted layoffs by agreeing to cut everyone’s hours and, thus, pay. In this country, average wages for the employed have risen faster than inflation since 2007, which is highly unusual for a downturn. Yet unemployment remains terribly high, and almost half of the unemployed have been out of work for at least six months. These are the people bearing the brunt of the downturn.

Germany’s job-sharing program — known as “Kurzarbeit,” or short work — has won praise from both conservative and liberal economists. Senator Jack Reed, Democrat of Rhode Island, has offered a bill that would encourage similar programs. So far, though, the White House has not pursued it aggressively. Perhaps Gene Sperling, the new director of the National Economic Council, can put it back on the agenda.

Restoring some balance to the relationship between employers and employees will be more difficult. One problem is that too many labor unions, like the auto industry’s, have been poorly run, hurting companies and, ultimately, workers. Of course, many other companies — AT&T, General Electric, Southwest Airlines — have thrived with unionized workers, and study after study has shown that unions usually do benefit workers. As one bumper sticker says, “Unions: The folks who brought you the weekend.”

Today, unions are clearly playing on an uneven field. Companies pay minimal penalties for illegally trying to bar unions and have become expert at doing so, legally and otherwise. For all their shortcomings, unions remain many workers’ best hope for some bargaining power.

The list of promising solutions to the jobs slump can go on and on. Reforming the disability insurance system so it does not encourage long-term joblessness would help. “Once people enter the system,” as Mr. Katz of Harvard says, “they basically never come back.” Improving high schools and colleges — reclaiming the global lead in education — would help even more. Remember, the jobless rate for college graduates is only 4.8 percent, and some highly skilled jobs continue to go unfilled.

The jobs slump has become too severe to disappear anytime soon. It will be part of the American economy and American politics for years to come. But there is no reason to treat it as a problem that’s immune from solutions. For starters, it would be worth figuring out what other countries are doing right.