Anemic Job Creation During The "Schumpeterian Depression"
The Wall Street Journal is discussing some interesting trends in business creation and small business hiring. Please consider Sharp Drop in Start-Ups Bodes Ill for Jobs, Growth Outlook.
New companies will be crucial to the strength of any economic recovery. Businesses in their first 90 days of life accounted for 14% of hiring in the U.S. between 1993 and 2008, according to the Bureau of Labor Statistics.
But this recession is taking a particularly heavy toll on business creation, as sources of small-business funding dry up and would-be entrepreneurs become more risk-averse. When entrepreneurs do launch businesses, they are hiring fewer employees on average. The trends threaten to damp growth in jobs and economic output for years.
Company formation typically dips slightly in recessions, says Brian Headd, a Small Business Administration economist. Earlier this decade, business starts -- including new businesses and units of existing businesses -- fell 9% between the third quarter of 2000 and the first quarter of 2003, the BLS says.
This time, the decline has been steeper. Business starts fell 14% from the third quarter of 2007 to the third quarter of 2008; the 187,000 businesses launched in that quarter were the fewest in a quarter since 1995. The number ticked up slightly in the fourth quarter, the latest data available. But those new establishments created only 794,000 jobs, the fewest since the government began tracking the data in 1993.
To be sure, as in past recessions, some laid-off workers are starting businesses to stay afloat, or testing long-held dreams. The Kauffman Foundation, a nonprofit research group that promotes entrepreneurship, says more Americans started businesses last year than in 2007. Kauffman cites research by University of California, Santa Cruz, economist Robert Fairlie, who analyzes different BLS data.
Mr. Fairlie, says statistics suggest more businesses are being created more out of "necessity" than "opportunity." That "does not bode as well for economic growth," he says.
The number of new businesses with relatively low income potential -- such as baby-sitting and house-cleaning services -- grew last year. But compared with 2007, there were fewer new businesses with high income potential -- like law firms, medical offices and manufacturing outfits.
http://globaleconomicanalysis.blogspot.com/
Sharp Drop in Start-Ups Bodes Ill for Jobs, Growth Outlook
http://online.wsj.com/article/SB125409527512844979.html
Reflections from news and commentary of the day
Subscribe To
Posts
Comments
1 comment:
Thoughts on the Schumpeterian Depression
My friend "BC" writes:
During Schumpeterian Depressions, large, cash-rich firms dominate and push increasing scale and standardization, whereas small firms suffer from a lack of capital and a reluctance by banks to lend.
This trend should persist well into the next decade, as deflationary depressions and the associated demographic cycle reduces business start-up activities, and this time around Venture Capital activity.
Also, younger workers of a peak demographic cohort lack the capital and longevity in the occupational structure to have made sufficient contacts and gotten access to capital and equipment in order to reach the necessary critical mass of experience, reputation, and problem solving one demonstrates sometime in their mid- to late 20s to early to mid-30s.
Thus, we are not likely to see a new wave of incremental innovation and new capital formation and business start ups until no earlier than the mid-to-late '10s to early '20s. In the meantime, mass cross-industry consolidation, R&D moving inside large firms, spin-offs, firings, wealth consumption, and shifting composition of household spending led by Boomers in late life will combine to slow growth for years to come.
Moreover it is questionable as to whether China and India can buck the larger demographic and Schumpeterian-curve trends, as they have come to rely so heavily upon US supranational firms' Foreign Direct Investment in plants, equipment, trade credits, and intellectual property. The growth of US and Japanese firms' FDI will likely continue to decelerate with "trade" for years to come.
For more on Schumpeterian Depressions, please see Creative Destruction.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Post a Comment