Unemployment, Inc.: Six reasons why America can't create jobs
UPDATE: No net growth in new jobs in August kept the US unemployment rate at 9.1 percent. Six reasons the country is struggling to put people to work – and why it may not last.
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The formation of new companies typically plays an important role in job creation, as firms pioneer new ideas or products and sometimes notch rapid growth. In the current environment, however, start-up activity has plunged. Running 25 percent below its 2006 peak, it is at its slowest pace since the Labor Department began tracking the activity in 1994.Skip to next paragraph
Moreover, the average number of jobs that each new business creates has declined, dealing a secondary blow to job creation. One problem facing start-ups is tight funding, not just bank loans but the channels of money a nascent firm often gets first from "angel investors," then from venture capitalists, and finally from initial public offerings of stock (IPOs). More broadly, businesses large and small feel high uncertainty and low confidence about launching new ventures in a weak economy.
Yet, even in this slack time for start-ups, forces are at work encouraging more innovation. For one thing, the current "lean start-up" model, involving minimal staff, hints at how the Internet has made it easier than ever to launch a new venture.
"There are all kinds of entrepreneurial opportunities that don't require significant capital," says Bruce Tulgan, head of Rainmaker Thinking, a consulting firm in New Haven, Conn. "The learning curve is much lower than it used to be," and the Web makes it easier to find help, whether it's partners to develop a product or advice on marketing.
6 When a home is a dungeon
We'll end the tour of job-market impediments where we began: with the overhang of high debts in the wake of the 2008 financial crisis. Most people don't need to be reminded that the fallout from the recession has added to an already high national debt, or that about 11 million Americans have a mortgage balance larger than what their home is worth.
The result is that consumers feel less able to spend, while banks are still working through an in-box full of foreclosures and other bad loans. Governments (state and local as well as federal) have their own debt and deficit tribulations.
All this acts as both a financial and a psychological barrier. By some measures, consumer households are making progress. The average ratio of debt-service payments to income has fallen from historic highs to mid-1990s levels, for instance. But by other gauges, there's a long way left to go.
A new survey of 1,000 US adults by Bankrate.com, a financial information firm, found numerous signs of backsliding over the past year. Some 35 percent say their overall financial situation is worse now than 12 months ago, while just 19 percent say it's better. Many now feel less secure in their jobs, and people who have jobs are more likely to have reduced their rate of saving for retirement.
Less in view for the average family, but perhaps just as important, is the turmoil in Europe. Government debt in nations such as Spain and Italy, if not addressed effectively through some fiscal restructuring, could spawn a new financial crisis that would spill over into banks and the global economy. Concern about such a collapse, as well as worries that the US could dip into a new recession, have recently set global stock markets on edge.
The risk of another US downturn highlights the balancing act ahead: The federal government will face financial pressure to curb spending, especially on entitlements like Medicare and Medicaid, but finance experts say the economy could face a short-term hit if fiscal policy shifts too fast from "stimulus" to retrenchment.