South By North Strategies, Ltd.

Around the Dial – Oct. 20

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

• The Times’ Paul Krugman on why “the banks are not all right.”
• The Economix blogs about plunging state tax revenues.
• The Wall Street Journal traces abusive uses of the home-buyers’ tax credit.
• The Financial Times explains European monetary policy.

County Data Collection

The Census Bureau recently updated its USA Counties dataset. This collection provides a single source of county-level data related to age, agriculture, ancestry, banking, building permits, business patterns, crime, earnings, education, elections, employment, government, health, households, housing, income, labor force, manufactures, population, poverty, retail trade, social programs, veterans, vital statistics, water use, and wholesale trade.

A New Social Contract

The health insurance reform legislation moving through Congress is based on the idea that most working Americans will receive health insurance through their employers. This assumption is consistent with America’s tradition of using tax subsidies to encourage employers to provide certain forms of social insurance.

Yet as a story in The Wall Street Journal notes, more and more employers are abandoning retirement and health insurance benefits, regardless of the tax advantages. The result is a major restructuring of the the nation’s social contract — a restructuring that is altering  radically the ability of working Americans to retire in dignity or afford medical care.

Writes the Journal about the state of employer-sponsored health insurance:

The percentage of employers offering health-care benefits is 60% this year, down from 63% in 2008 and 69% in 2000, according to the Kaiser Family Foundation.

In a survey by Hewitt last winter, 19% of large employers said they planned to move away from directly sponsoring health-care benefits over the next five years.

In the meantime, workers’ share of health costs is headed up. For next year, 63% of employers that offer health coverage plan to increase employees’ share of the expense, according to a survey of 1,500 employers by another consulting firm, Mercer.

Philanthropy Journal Highlights Economic Research

An article in the online magazine Philanthropy Journal featured the research on jobs-centered development that South by North Strategies, Ltd. recently conducted for the Mary Reynolds Babcock Foundation in Winston-Salem, NC.

Click here to view the article.

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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