Is The American Jobs Machine Still Working

Here’s a few bits of information that might temper any optimism you have about an improving labor market in this country.

First, consider this from the WSJ economics blog:

The Census Bureau on Wednesday said that 403,765 new firms were started in the 12 months ended March 2009, down 17.3% from a year earlier and the fewest on records that begin in 1977.

New businesses are an important source of new jobs — without them, there would be no job growth at all. Indeed, the new Census data show that one of the reasons that the job market declines were so severe in the recession was the dearth of start-ups. Firms less than a year old employed 2.3 million people in March 2009 whereas as a year earlier start-ups employed 3 million people.

Want a little more meat to put on that bone? Here’s a study from the Kauffman Foundation that finds striking declines in job creation.

The Census Bureau’s Business Dynamics Statistics
(BDS) provides data on business dynamics for U.S.
firms and establishments with paid employees.
This briefing highlights some key features of the most
recent BDS update, which now has data through
2009—the trough of the recent recession.
The BDS shows a very large decline in gross job
creation from existing firms as well as startups in the
recession. Economy-wide job-creation rates and the
job-creation rate from business startups (new firms)
are lower in 2009 than in any year since at least
1980. The historically low rates in 2009 reflect many
factors, the first of which is the very large decline in
overall economic activity.
However, the recession exhibited not only a very
large decline in overall activity, but also an especially
large reduction in overall job creation, and in job
creation from startups and new establishments.
The historically low job creation rates from business
startups combined with a secular downward trend in
job creation and destruction rates over the past few
decades contribute to 2009’s lower job creation rates.
You should take a look at the full Kauffman study — don’t worry it’s neither overly long or wonkish.

One item that struck me was the decline in job destruction along with the decline in job creation. From 1980 to 1989 on average 16.2% of total jobs were lost. In the next two decades the average slipped to 14.8%. I have no ready answer as to why this happened and the authors confine themselves to a review of the data so we’re left with guesses. Assuming that there definition of all jobs includes both private and public sector employment we might surmise that the growth in government workers and the attendant stability of those positions might account for a large part of the decline. Of course, the steady decline in job creation by startups would also partially explain why job destruction declined. Startups fail more frequently than established companies, hence a decline in job creation by them will also impact the job destruction statistics.

But putting that aside, the study seems to confirm that the “jobless recovery” we moaned about after the 2000-2001 recession as well as the disastrous labor market we are currently experiencing are merely reflections of a trend which has been developing for decades. It took a major economic catastrophe to highlight the fact that the labor market has been becoming sclerotic for some time.

I will leave it to others to divine the reasons for the decline in entrepreneurship as well as the failure of the economic system to create jobs. It seems clear, however, that the great American jobs machine has been becoming more myth than reality and that all of the talk about getting small business creation back on track as a precursor to improving employment opportunities was based on an assumption about past performance that doesn’t square with the data.

High unemployment looks as if it will be with us for some rather long d of time if the folks from Kauffman are right.

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