The number of out-of-work job seekers who started their own businesses hit a record low in the first half of 2010, according to recent report by Challenge, Gray & Christmas. The outplacement and executive coaching firm has been tracking this data for almost 25 years.
The report says that only 3.7% of unemployed workers are starting their own businesses rather than looking for a job. This figure is down from 7.6% in the first half of 2009 and down from 9.6% in the second half of 2009. The previous low was 4.4%, during the second half of 2008.
The report from Challenger follows another study released by the Kauffman Foundation earlier this month that points to the crucial role that startups play in job creation. In fact, the Kauffman study contends that “without startups, there would be no net job growth in the U.S. economy. This fact is true on average, but also is true for all but seven years for which the United States has data going back to 1977.”
While new companies create an average of 3 million jobs, existing firms lose about one million jobs a year. The Kauffman study also suggests that startups continue to create jobs, even during recessions.
The combined data from these reports may explain why job creation in the US remains low: fewer startups founded, fewer jobs created.
“It is difficult to pinpoint the exact reason behind the decline in start-up activity among former managers and executives,” notes John Challenger, CEO of Challenger, Gray & Christmas. “On one hand, it could be that the job market has improved to the point that many do not feel compelled to take the risk of going it alone. Then there is the fragility of the recovery and the uncertainty that comes with it. Many small business owners are increasingly pessimistic about business conditions and still find it difficult to get a loan.”
But if startups are indeed essential to job creation and by extension to economic recovery, support for new businesses seems vital.
