Why jobs are coming back far more slowly than they were eliminated

"Eight million may finally be enough," U.S. News and World Report's Rick Newman opines in his latest blog post. That's roughly the number of jobs the country has lost since the Great Depression began in late 2007.

But if the latest decrease in the unemployment rate holds, an end to job losses won't solve the country's unemployment problem. The economy must add more than 100,000 jobs per month just for the unemployment rate to stay even, and many more for the United States to return to economic health. The problem is there's been little sign of significant new job creation.

Newman wanted to know why the entrepreneurship that marked the end of past U.S. recessions doesn't seem to be happening in this one, so he spoke to Carl Schramm, president and CEO of the Kauffman Foundation, a nonprofit group that promotes entrepreneurship. 

Some of Schramm's observations:
  • Recessions spur entrepreneurial spikes. During recessions, large corporations return to their core business, often eliminating positions held by innovators working on new technologies, products or businesses. When jobs are cut, laid-off professionals often start their own firms. That's a major reason half of all Fortune 500 firms were created during a recession or bear market. They were founded by people out of a job, but who were able to tap important intellectual property to build businesses.

  • Why we're not seeing the creation of new businesses now. "This is the first time in a recession that we've seen new-firm starts decline," Schramm told Newman. Previous funding sources for fledgling small businesses tapping home equity, or even borrowing against retirement plans or on credit cards have dried up during the Great Recession. "That's a difference in terms of direction. Without creating high-growth businesses that helped end previous recessions, "there won't be new jobs ... That means there's a very bleak future for jobs."

  • The recent slight decline in the U.S. unemployment rate doesn't mean job growth is around the corner. "A lot of lost jobs aren't coming back. People who were laid off at GE, for example, are not getting those jobs back. We need to create new firms to hire those people."

  • What job seekers should do. Network, network, network. Get additional relevant education. That can mean, for example, someone with a bachelor's degree returning to a community college to improve or expand computer skills.

  • What a "President Schramm" would do. Rename the Small Business Administration the "New Business Administration" to signify the need to start as many high-growth, high-skill businesses as possible. Suspend cumbersome regulations like Sarbanes-Oxley, but only for small businesses. Offer tax breaks, but again, that only benefit new businesses.
To read Newman's original post, click here.

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