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Why Start-ups Could Make or Break the Job Recovery
Liz Wolgemuth
Entrepreneurship seems as American as apple pie, but a new report suggests that it could be waning. The slice of job seekers opting to start their own businesses dropped to a record low in the first half of the year, according to a survey released today by Challenger, Gray & Christmas, a
Challenger, Gray & Christmas, which has been tracking the rate since 1986, says the first half of this year represented the lowest two-quarter average on record. In the first quarter of the year, the start-up rate was 3.4 percent. In the second quarter, it was 3.9 percent. By comparison, the highest rate on record was 21.5 percent, recorded for the first half of 1989. "It is difficult to pinpoint the exact reason behind the decline in start-up activity among former managers and executives," Challenger CEO
Start-ups are particularly critical to job growth. Federal Reserve Chairman
In a new research paper,
Despite his research, Kane says he is not particularly concerned about the implications of the Challenger report. The findings give an impression that flies in the face of established economic empirical evidence, that self-employment rises when unemployment rates are high, Kane says. Because the survey pool is just job seekers, it may provide a limited view of entrepreneurship activity. The report shows start-up rates are low among the unemployed, but it doesn't say much about the overall volume of new firms. "We may have more starts than ever before," Kane says.
Start-up activity tends to be cyclical -- spiking when the recession has ended, as unemployment is high and hiring is nil, and falling when employers start adding to their payrolls again, according to Challenger. The rate of start-ups then begins to increase again as the economy grows. Hiring appeared to rebound in the spring, when the private sector added 158,000 jobs in March and 241,000 in April, but has since dipped considerably. That's likely because of concerns over the debt crisis in
There's no question that small businesses are finding this a difficult climate for success. Despite efforts to get banks to begin lending again, loans to businesses with fewer than 500 employees fell in the first quarter of this year. Federal Reserve Chairman
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Why Start-ups Could Make or Break the Job Recovery
(c) 2010 U.S. News & World Report