Policy Points

19.10.2009 Policy Points No Comments

Small Businesses and Job Creation

On The New York Times’ small business blog, Scott Shane of Case Western Reserve explains how start-up firms actually generate job growth and why business creation alone is unlikely to pull the labor market out of the recession.

Shane argues that the proper way to understand small business job creation is to look at both the jobs created by new small firms and those destroyed by small firms that fail in a given year. Explains Shane:

… Analysis of the data indicates that the annual cohorts of start-ups founded between 1977 and 2000 employed only 81 percent of the people in their sixth year that they employed in their first year. In other words, after the first year, the firms that failed destroyed more jobs than were created by the firms that survived. In fact, in no year did the sixth year employment of a cohort of firms equal its first year employment.

This point may seem a little abstract. So let me give you numbers from a particular year to make it clearer. In 2000, 487,000 new establishments were founded and created jobs for 3.1 million people. By 2005, those businesses only employed 2.4 million workers. That means the growing businesses founded in 2000 didn’t add jobs at a fast enough pace to make up for the shrinking and dying businesses started in that year.

So what does this mean for new business job creation? It means that new businesses are important to job creation primarily because they get founded, not because most of them tend to grow. Even though each cohort of new firms ends up shedding more jobs that it creates as it ages, the initial formation of new businesses creates jobs. And because a crop of new firms is born every year, jobs are continually created.

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19.10.2009 Policy Points No Comments

Personal Income in North Carolina

Preliminary data from the Bureau of Economic Analysis show that total personal income in North Carolina grew at a seasonally adjusted, quarterly rate of  0.4 percent between the first and second quarters of 2009. This was the first positive quarterly change recorded in North Carolina since early 2008.

All of the increase was attributable to government transfer payments, primarily payments associated with the American Recovery and Reinvestment Act. Transfer payments grew by 8.3 percent between the first and second quarters of the year. Altogether, government transfer payments added 1.6 percentage points to personal income growth.

Private sources of income, meanwhile, were negative. Net earnings fell and reduced total personal income by 0.75 percentage points. Similarly, dividend/ investment income fell and subtracted 0.4 percentage points from total personal income.

Although North Carolina was one of only a few states to post positive personal income growth, its performance was a middling one by any objective measure. Private income sources continued to decline and are much lower than they were one year ago. Absent government transfer payments, personal income would be even lower than it is.

19.10.2009 Policy Points No Comments

Around the Dial – Oct. 19

Economic policy reports, blog postings, and media stories of interest:

16.10.2009 Policy Points No Comments

Weekend Wonk Out

A round-up of policy reports from the week ending on 10/16:

16.10.2009 Policy Points No Comments

Jobless Recovery Takes Hold in NC

September’s employment report offered more proof that a jobless recovery has taken hold in North Carolina.

Last month, private-sector employers eliminated 13,600 more positions than they created. However, hiring in the public sector offset most of these losses, leading to a total statewide loss of just 600 positions. These findings come from data released today by the Employment Security Commission.

In September, North Carolina employers eliminated 600 more positions than they added. Private-sector employers eliminated 13,600 positions, with losses occurring in every major industry except for construction. These losses were offset by a net gain of 13,000 public-sector positions, primarily at the state (+4,600 positions) and local levels (+8,600 jobs).

Click to read South by North Strategies’ analysis of the latest employment report.