Monday, July 30, 2012

Entrepreneurship and Job Creation

Job creation is one of the most important factors in any economic recovery.  It is also the main factor that has challenged U.S. policy-makers since the 2008 Financial Crisis and resulting contraction.  A major part of the U.S. Presidential election has been about who knows how to create jobs, and how that is accomplished.  President Obama has been a proponent of the Keynesian stimulus variety.  The view that in times of economic contraction, the best thing to do is to increase government spending to make up for decreasing private investment and consumption.  Governor Romney has been a proponent of letting the private sector reinvigorate its own investment and consumption.  I wanted to find campaign ads of each candidate promoting their policies, but in the current political climate, it is much easier to find them bashing the others' ideas.

One thing that has had me concerned is the lack of entrepreneurship since the Great Recession began.  Entrepreneurship often increases during periods of low interest rates, high unemployment rates and their resulting downward shifts in nominal wages.  Why haven't we seen a flurry of small business start-ups in the United States these past few years?
Statistics of U.S. Businesses (U.S. Census Bureau)
It seems that the Statistics of U.S. Businesses survey has been discontinued by the Census and the Small Business Administration.  This is too bad because 2009 was the trough of the contraction, and I'm most interested in that statistic since then.

Business Dynamics Statistics (U.S. Census Bureau)

The Business Dynamics Statistics survey lasts until 2010, and are somewhat more tuned to this issue: firm creation and job creation.  2009 saw the greatest decrease in job creation since the survey began with a twenty percent drop.  Firm creation did not drop (year over year) as much and has since rebounded to almost 10%!  So perhaps this is evidence that the problem is not as significant as anecdotes would suggest.  Another interesting aspect of the job creation data is that this only measures private sector job creation, and clearly shows that private sector employment rebounded into positive growth by 2010.

The United States is the fourth easiest nation to do business in, as ranked by the World Bank.  There are clearly some areas in which we could do better.  The main way that we perform poorly is business taxes, where we rank 72nd.

There are many factors that go into starting a business, and paying taxes is not the biggest factor, but it is a fairly correlated one (r = 0.37).  Bigger factors include 'protecting investors,' 'getting credit,' 'trading across borders,' and 'resolving insolvency.'  The U.S. is fifth and fourth for 'protecting investors' and 'getting credit' respectively.

The United States is clearly one of the best countries to do business in, and this might be one of the reasons that despite media and campaign trail reports of slowing entrepreneurship and job creation in the private economy, both factors have done quite a bit to turn around, despite the huge drop in late 2008 and 2009.

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