Last month was a very bad month for jobs; the economy lost 533,000 jobs, the worst monthly decline since 1974.
People often talk about the importance of entrepreneurs as job creators in this country. So I got to thinking: how much additional entrepreneurial activity would have been necessary to avoid these job losses? The answer, it turns out, is a lot.
The Office of Advocacy of the U.S. Small Business Administration estimates that there were 637,100 new employer businesses created in 2007. That’s an average of 53,092 new employer businesses per month.
Each new employer business averages about 3.8 employees. That means that the 53,092 new employer businesses created every month generate about 201,748 new jobs.
In an average month, new employer businesses create about 38 percent as many new jobs as we lost in November 2008. So, if we could figure out a way to have increased new employer businesses by 2.64 times their average monthly rate during November 2008, we could have offset the month’s job losses.
But, we would probably need additional entrepreneurial activity to do this. A variety of estimates from the Census Bureau and other places indicate that only about one-in-four new businesses is an employer business. So in an average month last year, 212,367 new businesses were created to generate the 201,478 new jobs. That means that to create enough jobs to replace the 533,000 jobs lost in November, we would have needed approximately 561,033 new business starts. That’s a lot of entrepreneurial effort.
But we’re not finished yet. To create this number of start-ups, we need many more people trying to become entrepreneurs. Only about one-in-three people who begin the process of starting a business actually create a business within seven years. So, we would have needed about 1.68 million people to have initiated the start-up process some time before November 2008 to have replaced the jobs lost during the month of November. That’s huge amount of entrepreneurial effort.
What’s my point? It’s not to depress you. It’s to illustrate an important issue. As valuable and important as entrepreneurship is in this country, the scale of the economic downturn is so large that we can’t offset it just by boosting our level of entrepreneurial activity. We need to do something to fix what’s going on in the big companies too.
* * * * *
About the Author: Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool’s Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By; Finding Fertile Ground: Identifying Extraordinary Opportunities for New Ventures; Technology Strategy for Managers and Entrepreneurs; and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company.