Number of the Week: More Entrepreneurs, Fewer Jobs

Real Time Economics

From The Wall Street Journal | By Mark Whitehouse

1 in 300: The share of Americans starting a business each month

More Americans are going into business for themselves, but that doesn’t necessarily mean they’ll be creating jobs for others.

In 2009, an average of 340 out of every 100,000 adults started a new business each month, according to economist Robert Fairlie at the University of California Santa Cruz. That’s up 11% from 2007, and well above the average of 290 in the ten years leading up to the recession.

A lot of the entrepreneurial activity is born not of inspiration, but of desperation. Mr. Fairlie’s research shows that more people started businesses in places where unemployment was high. In places where the unemployment rate was relatively low — 4% to 5% — the monthly entrepreneurship rate was only 280 out of every 100,000 adults in 2009.

To be sure, some of those businesses could become the Googles of tomorrow. Indeed, more than half of the 2009 Fortune 500 companies started up during a recession or a bear market, according to Dane Stangler of the Kauffman Foundation.

Still, most of the new businesses are nonemployer firms, such as one-person consultancies or E-bay businesses, which people set up because they can’t find jobs. Many likely don’t have revenues, or are independent contractors providing labor to other firms, notes John Robertson, a senior economist at the Federal Reserve Bank of Atlanta.

So far, there’s not much evidence that they’re turning into the kind of start-ups that create jobs. New, small employer firms created 11% fewer jobs in 2009 than in 2007, according to the Labor Department.