My previous post, two days ago, introduced a new book by two economists, John Dearie and Courtney Geduldig, “Where the Jobs Are, Entrepreneurship and the Soul of the American Economy”. They make a very strong case that net job creation comes primarily from businesses less than one year old, true “start-ups”. But, unfortunately, there has been a huge drop off in the number of new businesses created each year since 2007 and, furthermore, the historical average of seven new jobs created by a firm in its first year has now fallen to less than five.
How do we reverse this alarming trend? Here is what the authors have learned from the many entrepreneurs they have talked to:
- “Not enough people with the skills we need”
- “Our immigration policies are insane”
- “Regulations are killing us”
- “Tax payments can be the difference between survival and failure”
- “There’s too much uncertainty and it’s Washington’s fault”
Although there are 24 million Americans either unemployed or underemployed, there are also 3 million advertised high skill job openings going begging and many more potential jobs available for qualified individuals. A greater emphasis on STEM (Science, Technology, Engineering and Mathematics) education in the U.S. would help. But also immigration reform is urgently needed. The Senate has passed legislation to raise the annual cap on H1-B visas (for high skilled workers) from 65,000 currently to 110,000. Hopefully the House will concur.
A Preferential Regulatory Framework for New Businesses could be devised to help fragile new businesses in their first five years. A Regulatory Improvement Commission could be created to streamline the entire federal regulatory process. Likewise a Preferential Tax Framework for New Business should be created and could, for example, recommend taxing income for the first five years at a much lower rate than normal.
Regarding policy uncertainty the authors refer to the U.S. Economic Policy Uncertainty Index which is at a very high level since the Great Recession. Economic uncertainty obviously discourages business growth.
Conclusion: A very good way to boost the economy and create more new jobs is to put greater emphasis on supporting entrepreneurs who are trying to start new businesses. There are a number of concrete actions that the federal government can take to do this and doing so should be a very high priority for our national leaders.