Self-Employment IS Job Creation
By Sean Luechtefeld on 12/10/2012 @ 03:30 PM
Twenty-twelve was a banner year for small business. The election, combined with the lingering aftereffects of the Great Recession, brought small business to the forefront of a national conversation about job creation. Indeed, the American public refuses to believe that it’s only large corporations who create jobs.
In fact, not only is it not the case that large corporations create new jobs, but rather, according to research by the Kauffman Foundation, it’s new and small businesses that are solely responsible for all net new jobs that are created in this country.
All net new jobs.
Although this fact is realized by the owners of startups under a year old – those responsible for job creation – the public is yet to embrace a system that supports entrepreneurs who, in essence, create jobs for themselves where employment is otherwise unavailable. Meanwhile, millions remain jobless in an economy that still has a long way to go.
The struggles facing low-income people who turn to self-employment, though real, certainly aren’t insurmountable. For example, one barrier facing the self-employed is that the cost to file the taxes necessary to stay “legal” is high. In many cases, paying to file taxes which themselves come with a lofty price tag simply isn’t viable for business owners who lack liquid capital in the first place. Yet, programs exist to help these filers. Volunteer Income Tax Assistance (VITA) sites – nonprofit programs authorized by the IRS to provide free or low-cost tax filing services – not only defray the cost of filing, but can also help low-income entrepreneurs claim the Earned Income Tax Credit (EITC). Annually, the EITC delivers $7.5 billion in capital assistance to 4.4 million self-employed households.
As a related example, low-income business owners often lack capital and business services that help more established businesses succeed. These services are currently being offered by nonprofits all over the country who help owners of startups access checking and savings accounts or who offer workshops and trainings on homeownership, foreclosure prevention, business development and financial management.
These programs are already proving successful in hundreds of communities throughout the US. To expand on these successes, the federal government should expand programs that help entrepreneurs. Doing so would help more low-income entrepreneurs succeed. When they succeed, we all benefit.
The key, of course, is making the obvious yet overlooked argument: that self-employment IS job creation.
Be Your Own Boss! California’s Opportunity to Support Self-Employment and Job Creation
By Heidi Pickman, Guest Contributor on 11/09/2012 @ 08:30 AM
Right now, California leaders have the opportunity to assist the unemployed to become self-employed, create jobs and reduce the unemployment rolls – all at the same time. Last spring, the federal Department of Labor government set aside $5.3 million for California to help unemployed workers start their own businesses, but so far the state has left that money on the table. The money is part of $35 million in grants that Congress made available for states to implement expansions of the Self-Employment Assistance (SEA) program. Under the SEA program, unemployed workers receive up to 26 weeks of unemployment insurance benefits while starting a small businesses – a full-time job in its own right. Participants receive training and assistance and do not have to look for other full-time work during that time. States have to opt in to the SEA program, but California has not yet done so.
To start a California SEA program and access the $5.3 million, the state legislature needs to pass a bill. CAMEO is working to make this a reality, but surprisingly there is opposition. “We initiated the Help Unemployed Be Your Own Boss (BYOB) campaign because California’s unemployment rate continues to remains higher than the national average,” said Claudia Viek, C.E.O. of the California Association for Microenterprise Opportunity (CAMEO). “If the unemployed can’t find a job, they can create their own. California needs to apply for these federal funds and train the unemployed to become their own boss.” CAMEO launched this petition to show Governor Brown and state legislators that Californians need and want this program.
California has had double digit unemployment for more than three years and a persistent problem with long-term unemployment. The percent of long-term unemployed (jobless for 27 weeks or more) as a share of total unemployed in California rose from 19.9% in December 2005 to 44.5% in December 2010. This dramatic increase in long-term unemployment has hit all demographic groups in California, but some populations experience more long-term unemployment than on average, including minorities and older workers.
Self-employment must be part of any economic recovery plan for California because existing companies are simply not creating enough jobs. Self-employment is a growing labor market trend; before 2000, self-employment grew at an average of 1.4% a year but post-2000, self-employment grew at an average of 3.5% a year. As of 2009, self-employment was more than 25% of wage and salary employment in California. The self-employment rate is projected to continue to grow in the years to come, increasing by an estimated 7.2% in the next five years. The SEA program would help those jobs develop faster and ensure that new business owners have the skills they need to succeed—but only if California acts soon. The deadline to apply for the $5.3 million in SEA funding is June 2013.
Please support CAMEO’s efforts! Sign the Be Your Own Boss petition and invite 10 or more friends to sign it. Spread the word with Facebook and Twitter.
AEO Launches 1 in 3 Campaign
By Kim Pate on 05/02/2012 @ 03:15 PM
As part of its 1 in 3 Campaign, the Association for Enterprise Opportunity has unveiled a new report at its annual conference further proving it’s proposition that, “If one in three microenterprises hired just one employee, the U.S. economy would reach full employment.”
In addition, the report concludes “If demand for microenterprise-intensive services and products was met locally in communities around the United States, we could create 10-16 million new jobs.” That’s based, the report says, on a survey of business owners who identified the local consumption impact on the 20 most microenterprise-intense industry sectors. That’s the key: people must start buying from the mom-and-pop shops.
This aligns with CFED’s Self-Employment Tax Initiative (SETI), funded by Sam’s Club Giving Campaign because SETI supports the notion that state and local governments can facilitate job creation by providing federal tax preparation assistance to new businesses and the self-employed.
Aspen Asks: Can America’s Small Businesses Deliver Growth and Financial Security?
By Lauren Williams on 04/26/2012 @ 01:30 PM
Small business defines American economic growth. CFED certainly believes that it can help families build financial security and Karen Mills, Administrator of the Small Business Administration, agrees.
At an event on April 12 hosted by the Aspen Institute as part of the “Building the Economy We Want: Aspen Asks What Will it Take?” series, Administrator Mills was interviewed by Jared Sandberg, Editor of Bloomberg.com about what is needed to make small business a robust engine of development for jobs that offer financial security for workers. Though many would argue that the SBA has a long way to go in order to better fulfill the needs of really small businesses—or microenterprises—she shared several encouraging insights regarding SBA’s commitment to small business development:
- What is the role of small business in that process and how is SBA supporting that role? Small business is, without question, the job creating engine of the American economy. Of the more than 27 million businesses in the United State, 99.9% are defined as small businesses with fewer than 500 employees. According to the Kauffman Foundation, without business startups, there would be no net job growth in the United States economy. The Recovery Act allowed SBA to increase its maximum guarantee on 7(a) loans to 90%, which was intended to reduce lender risk and encourage them to offer more and larger loans to small business owners. Administrator Mills argues that we are now in a recovery of substance fueled by entrepreneurship, regional cluster building and innovation.
- What about access to capital? Why are banks so averse to actually banking? What is SBA doing to improve access to capital? Early on in this most recent financial crisis, banks pulled back on their small business lending activity in order to avoid risk and some simply didn’t have enough capital to lend. Even after the Recovery Act attempted to lessen the risk to lenders of conducting business, access to capital has remained constrained in the American economy. Additionally, some argue that it simply costs banks too much to make small dollar loans for it to be profitable, which creates challenges for microenterprises seeking small amounts of capital in particular. SBA has tried to resolve some of the cost burden on banks making SBA 7(a) loans, minimize duplication and allow for quicker turnaround by reducing the number of pages of the SBA loan application from 46 to 8.
- Many sources of personal wealth and resources of low- and moderate-income families were depleted during the recession. How do we build that wealth back? The Administrator didn’t offer up any specific methods for helping families build wealth that was depleted during the recession, but did highlight the central significance of home equity in many of the communities hardest hit by the financial crisis, and encouraged the importance of a more inclusive vision of entrepreneurship going forward.
When it comes to helping families build personal wealth, CFED is rich with ideas. We know that achieving household financial security is a dynamic process in which families iteratively gain skills, increase income, begin to save, leverage savings into assets and protect gains made along the way. We know that families’ ability to build assets depends greatly on the quality of their access to public benefits, tax credits, quality job opportunities, affordable basic goods and services, debt reduction, low-cost financial products, public incentives and consumer protections. We also know that small business ownership, often starting with self-employment, is one way that many low- and moderate-income families create their own jobs and that policymakers and federal agencies that support small business are integral in developing a framework to support those families along the way.
New Federal Funding Available for CDCs to Create Jobs and Combat ‘Food Deserts’
By Jimmy Crowell on 04/24/2012 @ 09:45 AM
Last week, the Department of Health and Human Services (HHS) Community and Economic Development (CED) program announced that they will be providing $27 million (up to $800,000 per project) in grants to community development corporations (CDCs) for projects that create jobs and business development opportunities for low-income individuals. Through this grant, the CED program aims to create new employment opportunities for Temporary Assistance for Needy Families (TANF) recipients and individuals living on incomes at or below 125% of the Federal Poverty Level.
The CED program, in coordination with the Healthy Food Financing Initiative (HFFI), will also provide up to $10 million for CDCs working to increase access to affordable and healthy foods in low-income communities. HFFI was created by the Obama administration in early 2010 to combat the growing number of food deserts, or communities with little access to fresh, healthy foods, in America. This funding from the CED program is designed to enable CDCs to develop food retail outlets and enhance healthy food infrastructures in low-income communities.
Applications for the CED program are due June 5, 2012 and can be submitted electronically here. We hope our partners in the field will be able to take advantage of this new funding opportunity!
Founder’s View: The Myth of the 1%
By Bob Friedman on 03/05/2012 @ 09:30 AM
Republican leaders like Speaker Boehner have suggested that increasing tax rates on the wealthiest one percent of Americans would be a mistake, alleging that the top one percent are the preeminent job creators and entrepreneurs in our economy. In fact, it turns out that the top one percent create only about one percent of businesses and that the lion's share of new businesses are started by the remaining 99%, including middle- and low-income Americans, trying to create jobs for themselves.
What’s more, the primary source of investment in the 2-2½ million new businesses started each year (which are responsible for almost all net new jobs created each year) is personal savings and the savings of friends, family and associates – not the resources of the wealthiest one percent. There may be other reasons not to increase tax rates on the top one percent, but impact on job and business creation and investment are not among them. Let us look instead to the opportunities open to all our people, especially those who may have entrepreneurial capability and interest, but not the ability to invest in themselves and their families.
When one examines the best available data, it becomes clear that the wealthiest one percent are not particularly more likely to be active entrepreneurs deriving a substantial portion of their income from their ventures than the other 99 percentiles. In fact, according to the Office of Tax Analysis of the Treasury Department, millionaires make up only .5% to 1.4% of small business owners. Ninety-nine percent of small – and new – businesses are founded by the rest of us; we represent all income brackets, races and education levels and we come from all over the country.
New jobs, in fact, do not come primarily from small or large businesses, but instead, from new businesses under one year old. According to the Kauffman Foundation, over the last thirty years, it is these youngest firms that have created all net new jobs, adding an average of three million per year.
Over the last thirty years, the job contribution of new and young businesses has varied from highs of 3.6 million to lows of 2.2 million. For the last couple years, we have been at one of those lows in new business job creation, at a time when we can least afford it. No wonder the nation is asking how to create jobs and only beginning to look in the right direction for how to stimulate the formation and growth of new and young business.
When one looks at the nature of new business job creation, the first finding is that most startups are small indeed, often employing only the entrepreneur herself/himself in the first few years. Some two million Americans create jobs for themselves each year, many part-time. Some of these businesses are pioneering new edges of the economy (green burials for the aging, soon-to-be-dying baby boomers; indigenous beans; new digital domains and new services) while others offer more prosaic goods and services. In both cases, entrepreneurship is often driven by necessity. Nevertheless, it remains the difference between some income and employment and unemployment and poverty.
Twenty to thirty percent of the self-employed add employees, sooner or later. Three percent or so of business starts grow to some size, creating tens or hundreds or thousands of jobs, and in some cases, they build whole new industries. It is on these high-growth firms that the Kauffman Foundation, the President’s Start-Up Initiative and many business leaders are now focused. Indeed, the cultivation of seed and venture capital firms, incubators, expanded H-1 Visas and lower tax rates for new businesses are all worth pursuing.
But what of the other 97%? Should we ignore them? More to the point, if you had met Steve Jobs when he was a college drop-out from a blue-collar home with an interest in calligraphy and acid, would you have recognized him as the stand-out entrepreneur of our generation? Unlikely. So, if we really want to increase the yield of our economic garden, perhaps we should water all the plants.
How do we do that? For starters, the un- or underemployed American considering whether to start a business and create a job for herself should be encouraged through tax deferrals that could temporarily reduce business costs (for example, not having to pay both employer and employee shares of FICA). Likewise, would-be entrepreneurs should have greater access to the personal savings and savings of families, friends and associates from whence the overwhelming majority of all investment in new business starts comes. To facilitate this, we should make the existing Saver’s Credit refundable and available for new business creation as well as homeownership, college and retirement. We should also think critically about a two percent reduction in the Self-Employment Payroll Tax, which looks like it may be the beginning of a true Self-Employment Tax Credit. Finally, we should remove the penalties poor and unemployed families depending on some form of public assistance face when trying to create their own jobs. This includes asset limits in welfare, Social Security, Food Stamps, health insurance and more.
In short, it’s new and young, not small or large. It’s savings and equity, not debt. It’s tomorrow’s economy, not yesterday’s. It’s powered by all of us, not just the top 1%. And, perhaps most importantly, it’s with tax incentives for saving and entrepreneurship for all, not just for our wealthiest neighbors.
The Economic State of America's Higher Education System
By Peter Kim, Guest Contributor on 02/13/2012 @ 03:30 PM
For years it was the dream of many Americans to send their children to college. However, it has turned into a fiscal nightmare for parents as tuition costs rise while the number of available jobs has not. Students and their families have taken huge sums of debt on the assumption that their college degree will be an instant ticket to a high-paying job, but those jobs are nowhere to be found in the current market. This spring, college graduates are entering a labor market with fewer jobs that require a college education. On top of that, a Yale School of Management study suggests college students who graduate in a recession can earn 40% less than students who graduate in better times. Higher education is turning into a bubble.
According to a 2010 report in Money magazine, the cost of college tuition has gone up 439% since 1982. Another study saw the rate of tuition growth increase four times the rate of inflation and twice as much as health care since 1978. While federal aid has offset some tuition for eligible students, their inability to find jobs has put a strain on their ability to pay back student loan payments. Some columnists blame the government for interfering with the market, arguing that federal aid encourages students to take on debt they may not be able to pay back.
As a result of the stagnant economy and continued high unemployment, college graduates are being forced to take low-paying jobs, sometimes multiple jobs, to pay bills. Graduates who took artistic disciplines have relied on freelance work to help make ends meet, but this is not enough. Others have chosen to do public service; in 2009 at the height of economic malaise, AmeriCorps reported a 42% increase in applications, of which 70% were college graduates. Still, others have decided to stay in school and go to graduate school.
Regardless, the lack of opportunities for capable graduates has forced many to return to graduate programs instead of contributing their skills to society. As a result, increased enrollment in college has resulted in the cost of higher education rising. Upon graduation, 65% of students graduate with debt, with the average student owing $24,000 in 2009. Facing unsustainable borrowing costs and a lackluster economy, graduates are finding it increasingly difficult to pay back their loans. Today, the higher education bubble is bursting at the seams as 10.8% of students at public institutions defaulting on their loans within three years of graduation (default rates at for-profit schools are double!). Today, understanding the long-term costs and benefits of attending a college will be more important than ever before. Digging deep to find grants, scholarships, and using all the resources available to you will be a great way for you to ensure a debt-free future.
For more information, watch this motion graphic created by Education News.Created By: Education News
With a passion for education and technology, Guest Contributor Peter Kim is getting involved in hopes to help innovate the way information is presented and received. Follow Peter on Twitter.
Exciting Professional Opportunity in Dallas/Fort Worth Area
By Susan Hoff, Guest Contributor on 01/19/2012 @ 10:30 AM
United Way Metropolitan Dallas Seeks Director of Financial Stability/Asset Building
United Way of Metropolitan Dallas is seeking a dynamic professional to lead a community organizing and planning effort to develop a comprehensive community plan to address family financial stability and asset development. Work will include analyzing existing resources in Dallas and around the country, developing a plan for strengthening and scaling successful programs, and identifying effective programs in other communities and developing a plan to import them. The successful candidate will have expertise and a proven track record in community organizing and planning, excellent verbal and written communication and facilitation skills, and strong working knowledge of financial stability and asset building programs and services.
This position is comes with a competitive salary and benefits package. Interested applicants should forward their resume and cover letter to Susan Hoff, Senior Vice President for Community Impact, at email@example.com.