Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21
Work From Home £10,000 Office Tour – Workspace + Desk Setup 2021 Top Tips - 12th Jan 21
Collect a Bitcoin Dividend Without Owning the King of Cryptos - 12th Jan 21
The BAN Hotlist trade setups show incredible success at the start of 2021, learn how you can too! - 12th Jan 21
Stocks, Bitcoin, Gold – How Much Are They Worth? - 12th Jan 21
SPX Short-term Top Imminent - 12th Jan 21
Is This The Most Exciting Oil Play Of 2021? - 12th Jan 21
Why 2021 Will Be the Year Self-Driving Cars Go Mainstream - 11th Jan 21
Gold Began 2021 With a Bang, Only to Plunge - 11th Jan 21
How to Test Your GPU Temperatures - Running Too Hot - GTX 1650 - Overclockers UK - 11th Jan 21
Life Lesson - The Early Bird Catches the Worm - 11th Jan 21
Precious Metals rally early in 2021 - 11th Jan 21
The Most Exciting Oil Stock For 2021 - 11th Jan 21
Financial Market Forecasts 2021: Navigation in Uncharted Waters - 10th Jan 21
An Urgent Message to All Conservatives, Right-Wingers and Patriots - 10th Jan 21
Despite Signs to the Contrary, Gold Price at or Near Top - 10th Jan 21 -
Ultimate Guide On The 6 Basic Types Of Index Funds - 10th Jan 21
Getting Vaccinated at TESCO - Covid-19 Vaccinations at UK Supermarket Pharmacies and Chemists - 10th Jan 21
Cheers for the 2021 Stock Market and These "Great Expectations" - 9th Jan 21
How to Plan Your Child With Better Education - 9th Jan 21
How To Find The Best Casino - 9th Jan 21
Gold Is Still a Bargain Buy - 8th Jan 20
Gold Price Set to Soar as Hyperinflation Looms - 8th Jan 21
Have Big Dreams? Here's How to Pay for Them - 8th Jan 21
Will the Fed Support Gold Prices in 2021? - 8th Jan 21
Stocks trading strategies for beginners - 8th Jan 21
Who is Buying and Selling Stocks in 2021 - 8th Jan 21
Clap for NHS Heroes 2021 as Incompetent Government Loses Control of Virus Again! - 8th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Obama Failed Economic Policy, No Recovery Without Job Creation

Economics / US Economy Jul 12, 2010 - 06:02 AM GMT

By: Mike_Shedlock

Economics

Best Financial Markets Analysis ArticleThere will be no recovery without jobs, and there will be no net job creation if small businesses, especially startups, do not lead the way.


Please consider The Importance of Startups in Job Creation and Job Destruction by Tim Kane, PhD, and Senior Fellow in Research and Policy at the Kauffman Foundation.

A relatively new dataset from the U.S. government called Business Dynamics Statistics (BDS) confirms that startups aren’t everything when it comes to job growth. They’re the only thing.

Put simply, this paper shows that without startups, there would be no net job growth in the U.S. economy. This fact is true on average, but also is true for all but seven years for which the United States has data going back to 1977.

Figure 1 presents summary data from the BDS,1 showing that firms in their first year of existence add an average of 3 million jobs per year. By construction, the BDS defines an existing firm—age one up to age twenty-six and beyond—such that it can both create and lose jobs. In contrast, a startup, or age zero firm, only creates jobs because it experiences no gross job destruction. We might anticipate that the net job gain also would be positive at existing firms, but that is decisively not the case during most years on record. Notably, the figure shows that, during recessionary years, job creation at startups remains stable, while net job losses at existing firms are highly sensitive to the business cycle.



On balance, existing firms lose more jobs than they create. But once Deaths are set aside, Survivors usually create more net jobs than startups do. Among Survivors, so-called gazelle firms are certainly more important still.

In sum, the new firm-level summary data in Figure 1 reveal that startup firms are responsible for all net job creation during most years, while existing firms (aged one year and older) are usually net job losers. To be fair, startups have a definitional advantage because they can’t lose jobs, and some of their created jobs will surely be lost by next year’s age one firms.

What Figure 1 doesn’t reveal then is the gross flows within the firm age categories, which is the inspiration for this study. We would like to know whether age one firms are net job creators. Ideally, we would like to pinpoint the transition year when firms become net job destroyers, or find if a consistent pattern even exists. ...


[Figure 4] paints a picture surprisingly different from what informed, conventional wisdom presumably imagines.

Analysis

Startups create an average of 3 million new jobs annually. All other ages of firms, including companies in their first full years of existence up to firms established two centuries ago, are net job destroyers, losing 1 million jobs net combined per year. Patterns of job growth at startups and existing firms are both pro-cyclical, although existing firms have much more cyclical variance.

The implication of this finding could, and perhaps should, shift the standard employment policy paradigm. Policymakers tend to reflect common media stereotypes about job changes in the economy, which is to say a focus on the very large aggregate picture (such as the national or state unemployment rate) or on news of very large layoffs by individual companies. That attention is almost certainly misplaced.

Nationwide measures are a blunt tool for analysis, and net employment growth reveals little that policy can affect.

Similarly, the common zero-sum attempts to incentivize firm relocation are oblivious to the important pattern of gross job creation revealed by the BDS. States and cities with job creation policies aimed at luring larger, older employers can’t help but fail, not just because they are zero-sum, but because they are not based in realistic models of employment growth.

Job growth is driven, essentially entirely, by startup firms that develop organically. To be sure, Survivors create zero to 7 million net jobs (half of which are at establishment births), while Deaths account for a net loss of 4 million to 8 million jobs, which are large flows for the context of the steady job creation of 3 million startup jobs. But, in terms of the life cycle of job growth, policymakers should appreciate the astoundingly large effect of job creation in the first year of a firm’s life. In other words, the BDS indicates that effective policy to promote employment growth must include a central consideration for startup firms.

Current Jobs Picture

The official unemployment rate is 9.5%. However, that number does not include 2.6 million "marginally attached" workers who wanted a job but were not counted as unemployed because they had not searched for work in the last 4 weeks.

It also does not include students who stay in school piling on debt because they cannot find a job, and it does not include people working part time who want to work full time.

More realistic measurements incorporating those things show that unemployment is closer to 17% than 9.5%.

Unfortunately, things are not improving. Let's take a look at the conditions, then the reasons why.

Bleak Outlook For Small Businesses

Please consider Jobs outlook for small businesses may be getting bleaker.

For the recovery to gain steam, most economists believe small businesses need to be strong enough to hire new workers. But according to one measure, the employment picture in this sector is weakening.

Intuit Inc., which provides payroll services for small employers, says the nation's tiniest companies had fewer new hires last month than any time since October.

The slowdown in hiring is particularly troublesome, experts say, because small businesses typically hire first during a recovery. A reluctance by little companies to add positions could mean that the big firms, which typically lag behind, will add jobs even more gradually.

To calculate its estimate of national hiring, Intuit uses payroll information from its 56,000 small-business customers. The company defines small businesses as those with fewer than 20 employees.

Intuit's data show that small businesses hired just 18,000 additional workers last month. That's still positive territory, but it's less than a third of the 60,000 that were added in February, when it seemed that an employment recovery was imminent. Additional hiring dropped steadily during the spring, to 40,000 in April and 32,000 in May. Another payroll company, Automatic Data Processing Inc., painted an even gloomier picture, saying that small businesses lost 1,000 jobs nationwide in June.

"It's disappointing," Woodward said. "Considering how many unemployed people there are, it's disheartening."

To understand the oversized importance of these little businesses to the U.S. jobs picture, consider that the smallest firms — those with fewer than 20 employees — employ more than one-sixth of the nation's workers. But so far this year, these companies have provided about one-third of all new private-sector jobs, said Brian Headd, an economist with the Small Business Administration. So any cutbacks would be felt disproportionately throughout the economy.

"Small-business hiring is right at the heart of it because small businesses usually are the engine of job creation in the U.S.," said John Challenger, president of the employment consulting firm Challenger, Gray & Christmas. "It's small businesses that drive the unemployment rate down, and if the small businesses are faltering, that suggests that the risks of recession are growing."

Failed Policy

Those two articles highlight where and how Obama is going wrong.

Specifically, Obama is focused on "saving jobs" rather than creating a business environment that fosters the creation of new jobs and new businesses.

  • Administration policies waste money with makeshift projects such as repaving roads that do not need to be paved
  • Administration policies waste money protecting the jobs of overpaid bureaucrats and public union workers.
  • Administration policies, especially healthcare, have added to small business startup costs
  • Administration policies have raised taxes increasing the risk (lessening the risk-reward scenario to start a new business)

Business Profits - the Catalyst for Starting a Business

Why start a business? Profits of course! Yet, if government makes it too difficult to make profits, then ... Why start a business?

Please consider the following email from Robert J. Kecseg at Las Colinas Capital Management.

Hello Mish

Business profit is the real catalyst for new jobs. That is why tax reduction works so well. Lower taxes help businesses make profits. More profit means more capital investment and more innovation.

Reduced taxes across the board gives everyone an equal chance. In contrast, targeted government spending is always poorly allocated.

This is where people like Krugman have it all wrong. Please emphasize the power of profits.

Robert J. Kecseg
Las Colinas Capital Management,

Folly of Targeting Jobs

Thanks Robert.

Targeting jobs, is exactly what I railed about in Obama Hails New Solar Energy Jobs at Taxpayer Price Tag of $1,333,333 Each

Interestingly, I received several emails demanding I issue a retraction because Obama made loans not grants. So what? Those businesses may fail and if they do, taxpayers will be on the hook.

The key point however, is government ought not be picking winners and losers. Providing money to Abengoa Solar and Abound Solar Manufacturing may mean the failure of competing, perhaps even better businesses.

Certainly, the government's track record at picking winners and targeting stimulus is pretty miserable. Ethanol from corn, and various housing proposals that have all failed are good examples.

Corporate Tax Policy Encourages Jobs Flight

US tax policy allows deferral of corporate profits on taxes overseas. Tat policy practically begs large multinational to move jobs overseas and to keep profits there as well. Moreover, the policy gives unfair advantage to large corporations which can shelter profits vs. small corporations and startups that cannot.

President Obama cannot be blamed for this given the policy has been in place for years. Yet, no one seems inclined to want to do anything about it.

One common complaint I hear is "the Bush tax cuts did not create a lot of jobs". Fair enough, I certainly agree. Moreover, I have absolutely no love for President Bush. That said, one reason the Bush tax cuts did not work is Bush wasted trillions of dollars in Iraq and other war-mongering policies. That negated some of the benefits of lower taxes. Another reason is President Bush inherited an economic mess caused by the Greenspan Fed.

Obama inherited the same economic mess of course, but has also made matters worse by inept policies that have cost jobs and will continue to cost jobs.

How to Create Jobs

  • Slash corporate income taxes.
  • Scrap Davis Bacon and prevailing wage laws. Please see Thoughts on the Davis Bacon Act for more on the insanity of prevailing wage laws.
  • Privatize jobs held by public unions. Firing Public Union Workers Creates Jobs.
  • Require competitive non-union bidding on all projects involving Federal funds.
  • Legalize hemp for use in bio-fuels and clothing.
  • Kill crop subsidies
  • Allow drug imports from Canada
  • Simplify the tax code
  • Open up medical insurance across state lines
  • Stop attempting to be the world's policeman

Those are 10 easy things we can do that will foster job creation over the long haul (directly in some cases, indirectly in others buy putting more money in people's pockets). In general, government needs to get the hell out of the way and reduce taxes so people and businesses have more money to spend.

Instead, the Obama administration supports higher taxes, more government, and the status quo on existing overpaid public union workers. Is it any wonder the outlook for small business and startup hiring is bleak?

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2010 Mike Shedlock, All Rights Reserved.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

RDS
12 Jul 11, 17:11
ANIMUS Plan, U.S. Jobs Creation Plan

If you have yet to see the ANIMUS Plan, a.k.a. 3 Million net new U.S. Jobs in 12 Months, you should. To view presentation, click on link... http://business.wesrch.com/pdfBU1O8DNH6KRUF


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules