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Startups Are the Solution to America's Jobs Crisis

John Dearie & Courtney Geduldig
John Dearie and Courtney Geduldig are co-authors of Where the Jobs Are: Entrepreneurship and the Soul of the American Economy. They will speak and sign copies of their book on Wednesday during the 2014 International CES as part of Gary’s Book Club.
Last month, the Bureau of Labor Statistics reported that the U.S. economy created 203,000 jobs in November and that the official unemployment rate ticked down to 7 percent.  Despite these encouraging headline figures, the November employment report also revealed that 11 million Americans remain unemployed, while another 7.6 million are working part-time jobs involuntarily – four and a half years after the Great Recession.  Total employment remains down 1.3 million jobs from the pre-crisis level – not counting the growth in the labor force over the past five years. According to the Brookings Institution’s Hamilton Project, even if the economy created jobs at the November rate every month going forward, America would not return to pre-recession levels of employment until August of 2018.  November was also the 43rd month in a row during which more unemployed Americans left the workforce discouraged than found jobs. 
Clearly, America remains in the grip of an historic jobs crisis.
Recent research conducted by economists using Census Bureau data and at the Ewing Marion Kauffman Foundation demonstrates that virtually all net new job creation over the past three decades has come from new businesses less than one year old – true “start-ups.” New businesses create an average of three million new jobs annually, while existing firms of any age, type or size, in aggregate, shed a net average of about one million jobs each year, as some businesses fail and others incorporate technology and become more efficient. Were it not for new businesses, there would be no net new job creation in most years.
But, alarmingly, after remaining remarkably consistent for decades, the number of new businesses launched each year – and the average number of new jobs created by each new firm – have declined in recent years.  In the year ending March of 2013, new businesses created 2.8 million new jobs, down 40 percent from the 4.7 million new jobs created by new businesses in 1999.
In other words, new businesses are America’s engine of job creation, and in recent years that engine has been sputtering.
To find out why, we embarked on a remarkable summer road-trip, conducting roundtables with entrepreneurs in 12 cities across the United States, asking them: “What’s in your way?”
Despite the size and diversity of the U.S. economy, entrepreneurs from all over the country reported the same burdens, frustrations and difficulties:
  • They have the jobs, but can’t find enough people with the required skills to fill them;
  • That domestic skills gap is exacerbated by self-defeating immigration policies that undermine the attraction and retention of the world’s best talent;
  •  Access to startup capital, always a challenge for entrepreneurs, is even more difficult in the wake of the 2008 financial crisis;
  • Over-regulation, and tax complexity and uncertainty, are diverting far too much of entrepreneurs’ time and energy away from launching and developing their new businesses; and,
  • Washington-created chaos is creating profound economic uncertainty that complicates or even prevents new investment, risk-taking and hiring.
The good news is that those common problems suggest a road-map to recovery. In our book, Where the Jobs Are: Entrepreneurship and the Soul of the American Economy, we’ve put together a game-plan for unleashing the job-creating capacity of the entrepreneurial economy based on what American entrepreneurs told us they need: 
  • Provide fragile startups substantial tax and regulatory relief during their critical first five years;
  • Incentivize badly needed workers with backgrounds in science, technology, engineering and math (STEM) by awarding substantial tax credits to graduates;
  • Launch an immediate dialogue between business and education leaders to ensure that K-12, college and university curricula serve both the broad education needs of American students, as well as the skill needs of 21st century businesses;
  • Welcome the world’s best talent by eliminating the arbitrary cap on H-1B visas, awarding green cards to all foreign-born graduates of American colleges and universities meeting security requirements who earn degrees in STEM fields, and by creating a “Startup” visa for foreign-born entrepreneurs;
  • Incentivize through tax credits the formation and commitment of “angel” capital, which accounts for more than 80 percent of outside “seed” funding of start-ups;
  • Help more young companies go public earlier – more than 90 percent of new-business job creation occurs after their initial public offering – by restoring the economics of small cap IPOs, severely damaged by the decimalization of stock prices;
  • Create a Regulatory Improvement Commission (RIC), modeled on the Base Closure and Realignment Commission (BRAC) to serve as a procedural mechanism for the regular evaluation, simplification, consolidation, and elimination of selected existing regulations;
  • Raise government-funded R&D to its historical high of 2 percent of GDP;
  • Restore the commercial R&D tax credit to the most favorable in the world – and make the credit permanent; and,
  • Accelerate the growth of exports by negotiating trade agreements with the world’s largest and fastest growing economies like China, Brazil and India.
These and the remainder of our policy proposals respond directly and specifically to what our participating entrepreneurs told us they need.  In fact, a number of the recommendations were made by the entrepreneurs themselves. Such an agenda, if implemented, would dramatically enhance the circumstances for new business formation, survival, and growth – thereby accelerating economic growth and helping to put millions of suffering Americans back to work.