Saturday, November 13, 2010

The rise of the desperate entrepreneur

1 in 300: The share of Americans starting a business each month, Mark Whitehouse reports in The Wall Street Journal.
In 2009, an average of 340 out of every 100,000 adults started a new business each month. That’s up 11% from 2007, and well above the average of 290 in the ten years leading up to the recession.
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.
Here's a picture.

These nascent entrepreneurs are not starting the next Google, although more than half of the 2009 Fortune 500 companies started up during a recession or a bear market.
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.
You can look at this in another way, through the "labor force participation rate," the percentage of the working age population in the labor force.
The collapse in the labor force participation rate has been one of the key stories of the great recession. As the economy slowly recovers, an important question is what will happen to the participation rate over the next few years? If the participation rate increases to 66% - from the current 64.5% - then the U.S. economy will need an additional 3.3 million jobs just to hold the unemployment rate steady (not counting population growth).
Here's a picture.

This graph shows the recent sharp decline in the participation rate (blue), and also the unemployment rate and the employment-population ratio. The participation rate had mostly been above 66% since the late '80s, and had been over 67% in the late '90s.

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