Skip

Jobs & Myths
October 4, 2010 2:29 PM   Subscribe

Who Creates Jobs? Robert Samuelson at the Washington Post discusses a paper "Who Creates Jobs? Small vs. Large vs. Young" (behind paywall, pre-publication PDF). The thesis is that long term job growth really comes from new start-ups.

Also discussed are 3 myths about entrepreneurial start-ups, the Blockbuster Myth, the Inspiration Myth and perhaps more controversially the Incentive Myth. Myths or not How To Start a Start-Up and Why to Not Not Start a Start-Up.
posted by Long Way To Go (21 comments total) 17 users marked this as a favorite

 
Who Creates Jobs? Robert Samuelson at the Washington Post discusses a paper "Who Creates Jobs? Small vs. Large vs. Young" (behind paywall, pre-publication PDF). The thesis is that long term job growth really comes from new start-ups.

I sure as hell hope so, seeing as the big corporations seem to be taking a vacation from hiring in order to snooze on their heaps of cashmoney.

Decoupling corporate profits from jobs:
Second-quarter earnings reports are coming in, and they're making Wall Street smile. Corporate profits are up. And big American companies are sitting on a gigantic pile of money. The 500 largest nonfinancial firms held almost $1 trillion in the second quarter, and that money pile is growing larger this quarter. Profits that plummeted in the recession have bounced back. Big businesses have recovered almost 90 percent of what they lost.

So with all this money and profit, they'll start hiring again, right? Wrong.

[...]

Bottom line: Higher corporate profits no longer lead to higher employment. We're witnessing a great decoupling of company profits from jobs.

The next supply-side economist who tells you companies need more incentive (i.e., lower taxes) before they'll hire is living on another planet.
posted by Rhaomi at 2:37 PM on October 4, 2010 [7 favorites]


Can't find the info right now, but in my last job I did some market research about the different strata of enterprises and their internet access needs. And, yeah, US employment is HUGELY skewed towards businesses with 99 or fewer employees.
posted by ZenMasterThis at 2:39 PM on October 4, 2010 [1 favorite]


Rhaomi: "So with all this money and profit, they'll start hiring again, right? Wrong."

Not with Obama in the White House they won't.
posted by boo_radley at 2:45 PM on October 4, 2010


Doesn't this kind of debunk the whole "trickle-down" theory? I mean, when I look around at the people I've known in my life, it is hardly ever those with real wealth who are taking the risks and starting their own companies. It's almost always been the dreamers in the middle-to-upper end of the middle class, making $75K-150K/year, who are really putting themselves out there to try to create a new company.

Also... How on earth can the Robert J Samuelson who wrote this article be the same man as the jackass who regularly writes for Newsweek? No single page in Newsweek routinely makes me want to throw the magazine across the room more regularly than Samuelson's bullshit. And yet, here, he seems to be intelligent and well spoken. Funny, that.
posted by hippybear at 2:49 PM on October 4, 2010 [1 favorite]


But don't people with "real money" get other people/funds/venture capital firms to invest? That's how independent films, restaurants, etc. work. Also, when corporations expand or open new divisions, those expansions aren't funded by the top levels of management or by the corporate boards.
posted by Ideefixe at 3:33 PM on October 4, 2010


Still waiting for the WPA to start up again.
posted by wcfields at 3:37 PM on October 4, 2010


Bottom line: Higher corporate profits no longer lead to higher employment. We're witnessing a great decoupling of company profits from jobs.

Profits and employment have never correlated over long periods of time. The decoupling is as old as capitalism.
posted by outlandishmarxist at 3:43 PM on October 4, 2010 [1 favorite]


US employment is HUGELY skewed towards businesses with 99 or fewer employees

Actually, the study says that when they controlled for age of business, size didn't matter. Only the relative newness of the corporation mattered.
posted by outlandishmarxist at 3:44 PM on October 4, 2010


This paper seems to be a bit of a red herring, though, since entrepreneurship is dependent on liquidity.
posted by outlandishmarxist at 3:46 PM on October 4, 2010


A profitable business isn't going to hire more workers unless it can be shown that those workers will lead to more profits. Companies that don't follow this rule tend to go out of business.
posted by humanfont at 4:18 PM on October 4, 2010 [2 favorites]


"Doesn't this kind of debunk the whole "trickle-down" theory?"

hippybear, if the last 20-30 years hasn't debunked "trickle-down" for the general public, ain't nothin' ever gonna.
posted by zoogleplex at 5:19 PM on October 4, 2010 [3 favorites]


Hiring people costs money, and money is expensive these days. Money is expensive because there is a fundamental lack of faith in those taking on risk that they will see profit from their investment. I suspect that's because they're intimately aware of just how well and truly fucked we really are, but that's just my own opinion.
posted by Civil_Disobedient at 5:42 PM on October 4, 2010


The system is undeniably broken. The widening of the income gap shows that. Stagnant middle class wages show that. Extreme unemployment shows that. Incredible wealth accumulation by big business that is not resulting in hiring shows that.

So how do we fix the situation? Big business claims that they aren't hiring or lending because the political future is too sketchy for them at the moment. (This, especially from banks, hurts small businesses and families way more than legislative squabbling does.) I see this as holding the country hostage to an extent.

Until we quit treating business as the untouchable savior and demand that they act like responsible citizens, things will only get worse. They have proven, time and time again, that they want a one-way street. It has always been thus, and every time we capitulate we get screwed.
posted by Benny Andajetz at 5:59 PM on October 4, 2010 [2 favorites]


"Hiring people costs money, and money is expensive these days."

Well clearly, money is only expensive if you're not already a large corporation, because the whole buzz here is that all these large corporations are borrowing tons of money at near-zero rates and then sitting on it.

If I could get any small business credit for my company (currently a company of just me), I could hire or subcontract 1, maybe 2 people tomorrow, as I'm booked with work for the next 3 months and I get called every week by other clients who want me, and I have to refuse.

This isn't low-wage work, either; I could hire at $60K/year or offer $60-75/hr for subcontractors and hire talented people I've worked with before who haven't worked much since they were laid off in 2008.

Even a $25K line of credit would let me quadruple my revenue, but no bank I've asked will extend me even that much until my revenue has exceeded $100,000/year for at least 3 years. This is kind of maddening, because I could do at least $250K/year immediately, probably more, if I could get that $25K to be able to cover paying people in advance of being paid by my clients, who generally pay me between 45 and 90 days from invoice date.

Basically, I could take one or two people and pay them $60K+/year each while massively enlarging my business and running about a 20% profit after EBITDA, on a very minimal risk from the bank.

But ain't nobody gonna lend me that money. I've even got collateral that I own free and clear with which I can more than cover $25K, and they still won't give me the business credit. I'd have to start running up my personal credit cards (I have almost zero debt, lots of room on my plastic) with cash advances to pay people - at 25% interest?? HELL no. It's not worth it, it doesn't make sense.

Hey Microsoft, how about you start loaning out some of that borrowed money you're sitting on at 5% to small businesses like me? You're in so many businesses these days, why not banking and incubation?
posted by zoogleplex at 6:03 PM on October 4, 2010 [3 favorites]


Oops, I just realized that shouldn't be "after EBITDA," it should be "after ITDA and operating expenses."

Maybe they're not lending me money because my biz-speak is faulty...
posted by zoogleplex at 8:10 PM on October 4, 2010


Zoogleplex: it's hard to believe there isn't some kind of solution out there for you online. Aren't there small business loan group-funding sites?
posted by Potomac Avenue at 10:45 PM on October 4, 2010


Zoogleplex: You could always form a corporation or partnership with your unemployed friends and work for equity. As long as you can all pay the bare necessities until the cash starts to come in, you're in good shape. Tons of businesses get bootstrapped in this way. If the business is profitable enough it's worth considering giving up some ownership and control to get a smaller piece of a bigger pie.
posted by Long Way To Go at 11:48 PM on October 4, 2010



Not with Obama in the White House they won't.



They won't hire with anyone else in the White House either, the news just won't make so much noise about jobs being an indicator of how the economy is going because the GOP won't bother addressing it and the news reporters will move on to something else.
posted by anniecat at 5:58 AM on October 5, 2010 [1 favorite]


Long Way: well if I were to start hiring people outright as opposed to subcontracting, I would incorporate right away anyway, but yes this is a possibility.

Potomac: I hadn't thought of that, silly me. I will look into it, thanks!

I should add that since business credit's been hard to come by, I've been working hard to put away a cash reserve for the business that's separate from my personal savings (which backstop my own pay. When I get to the point where I've got an appropriate amount in the business account, I won't need a loan to be able to start bringing people in.

But anyway, I'm just one tiny little business of many thousands that are good prospects, should be able to get credit, but can't - at a time when the economy is plodding along and unemployment is widespread - while the megacorps are borrowing lots of money that's being waved into existence by banks and the Fed and then not doing anything with it.

That really doesn't smell right. If new small businesses are great for the economy and create jobs, I should be able to get a reasonable amount of business credit through the mainstream banking system without having to resort to more exotic funding routes.
posted by zoogleplex at 10:24 AM on October 5, 2010 [1 favorite]


That really doesn't smell right.

You only just noticed the smell now?
posted by Fupped Duck at 11:36 AM on October 5, 2010


A capital strike is never pretty.
posted by meehawl at 8:26 PM on October 5, 2010


« Older After Muybridge   |   Art History in HD Newer »


This thread has been archived and is closed to new comments



Post