Entrepreneurial

Tim Kane, at the Hudson Institute, has a new paper out with a simple title: "The Collapse of Startups in Job Creation". His paper is basically a slightly politicized version of the charts put out by the Bureau of Labor Statistics last month, under the headline "Entrepreneurship and the U.S. Economy". The first two charts are particularly striking. The first one looks at the number of startups in America -- companies less than one year old.

This shows a reasonably steady rise in entrepreneurship from 1994 to 2006, then a collapse as the housing bubble bursts, and -- most worryingly of all -- no recovery at all after the recession ends. Instead, we have significantly fewer startups right now than we did even at the depths of the recession.

If you look at the number of jobs at these startups, rather than the number of startups, the picture is equally bad, although the decline is older. This series peaked back in 2000, and has been declining ever since:

This doesn't make a lot of intuitive sense. As Kane writes,

Economic theory suggests that the modern economy offers a better environment for even more entrepreneurship. First, there is a wider technology frontier to explore. Second, a wealthier society enables more individuals to explore rather than merely work to survive. Third, the shift to services requires less startup capital than manufacturing or agriculture. In other words, the downward trend in the rate of entrepreneurship should, in theory, have rebounded by now.

Kane thinks that it's something to do with taxes and regulations; I don't buy it. But he also has a globalization argument:

When Casey McConnell started text messaging marketing company Qittle he took the traditional route of hiring onsite employees. But he soon realized it was more advantageous to hire workers online.

“We found it was easy to find these specialists or people that we could hire for a certain amount,” said McConnell, the CEO of Qittle. “We didn’t have the extra overhead and we just got the project done. It’s really easy for us to ramp up our needs or pull back using contractors. If we had an internal staff it’s pretty hard to fluctuate like that.”

Qittle’s preference to hire workers in the cloud is reflected in Elance’s recent survey that shows 83 percent of small businesses plan to hire half their workers online within the next 12 months. Only 10 percent of those surveyed plan to hire predominantly onsite workers (90 percent).

– Cynthia Hsu is a contributor to FindLaw’s Free Enterprise blog. FindLaw is a Thomson Reuters publication. This article originally appeared here. –

As a small business owner, knowing some of the intricacies of wrongful termination law can be vital to preserving your business. Illegal firing of employees for reasons you may believe are justified might just land you in a costly wrongful termination lawsuit.

Most employees are “at will” in the U.S., meaning that they can be fired for whatever reason you want. Of course, that reason must be a legal reason.

Deborah Ramsey went to work straight out of high school in the 1970s, working her way through the now-familiar rounds of layoffs, promotions and job changes at a series of banking, insurance and consulting companies in Philadelphia, her hometown. “I did my bit,” she recalls.

In 2005, she was working as an administrator for a technology consulting firm that was undergoing restructuring. “A lot of people were being laid off or leaving. I had been through two big layoffs before, I knew what they smelled like.” Ramsey decided to leave voluntarily, spurred by the changing work environment and caregiving responsibilities at home, where she looks after a mentally disabled daughter, an aging mother and mother-in-law, and her husband, a disabled veteran.

At age 52, she was ready for a change. Over the years, she had developed a strong interest in herbal remedies and massage therapy to help her daughter, who also suffers from asthma.

Lending to small businesses is often a spectacularly good way of creating jobs -- and almost always creates more jobs per dollar spent than any kind of infrastructure investment. One can argue at length about just how many dollars it costs to create one job in the infrastructure field, but whatever numbers you come up with, they're going to be much higher than, say, the numbers that Linda Levy, the CEO of Lower East Side People's Federal Credit Union, gave me for our small-business lending. (I'm on the board there.)

We've made 25 small-business loans of late, averaging $17,000 apiece. Linda reckons that on average each loan means the retention of one job, since someone with a job would lose it were it not for the loan. But put that to one side; she also says that the 25 loans, between them, have resulted in 10 brand-new full-time jobs as well. That's $42,500 per job created, which is a pretty good number.

The insight here is that small businesses don't tend to hire people who don't pay for themselves: the small-business loan just gives the necessary push to make that job possible in the first place. And small businesses tend to be more labor-intensive than capital-intensive, so new loans are likely to be transformed into new employment.

As any small business owner knows, getting a new company off the ground requires a lot of work. And for those entrepreneurs not enamored with the idea of running their company as a one-person show, hiring employees is among the first steps along the way to actually making it happen.

Unfortunately, many of the same startups burdened with so much work also suffer from a limited supply of funds in their early days, meaning they can find it tough to afford the number of employees they need.

But with the ranks of unemployed in the United States hovering at its highest rate in more than two decades, some small firms have found a rather unusual solution to this dilemma  – people willing to work for free. Employment agencies such as Jobnob.com and PeopleConnect have done their part in connecting unemployed individuals willing to work without payment to small firms in need of a helping hand.