COMMENTARY | Small businesses have historically been the economic engine of new job creation in the United States. If the economy were recovering, analysts would expect to see the number of new businesses rising. Instead, we are witnessing the death of small business in America.
According to US Department of Labor data and the ETF Daily News, there were almost 12 startup jobs per 1000 Americans back in the year 2006, but, by 2011, that figure had fallen to less than 8 per 1000. Jobs specific to new businesses has fallen from 4.1 million in 1994 to 2.5 million in 2010. Overall, the number of “new entrepreneurs and business owners” has fallen by a staggering 53 percent since 1977.
The other half of the equation is the self-employed who operate as contractors who do not necessarily hire anyone else. While being independent was riskier, the financial payoffs used to be usually worth the reward. According to the New America Foundation, between 1991 and 2010, the percentage of self-employed Americans fell by more than 20 percent between 1991 and 2010. Becoming self-employed is also less desirable since the average pay declined by $3,721 between 2006 and 2010, according to the Business Insider.
At the same time, big business and big government is thriving. Due to the recession, the Federal government saw a very short pullback in tax revenue because the United States income is represented by a percentage of what we call the Gross Domestic Product (GDP), which as of Q3 2012 was $15.77 trillion US dollars. That’s a $1.8 trillion increase from 2009, and Q4 is not yet over. The reason why we face the Fiscal Cliff is because the Federal income represent around 17 percent of GDP, and, yet, Federal spending is about 24 percent of GDP. That explains the Fiscal Cliff and Congress’ budget problems in a nutshell.
So if small businesses are shrinking, what else besides big corporations is growing? According to Investors.com, the United States government is hiring like crazy:
“In the 1,420 days since [Obama] took the oath of office, the federal government has daily hired on average 101 new employees. Every day. Seven days a week. All 202 weeks. That makes 143,000 more federal workers than when Obama talked forever on that cold day in January of 2009.”
But why would people want to become a public sector government drone… cough, worker when they could be starting a new business? The answer according to Investors.com makes perfect “cents”:
“…the average civilian federal government worker collected just under $84,000 a year in taxpayer money, about $32,000 more than the average private sector worker. That’s a total federal worker package of about $236 billion a year.”
Sounds like the economical climate of the current United States gives very little incentive for anyone to become a new small business owner. Economist Tim Kane goes one step further and claims that this attitude is being propagated by the actions of the Federal government:
“There is anecdotal evidence that the U.S. policy environment has become inadvertently hostile to entrepreneurial employment. At the federal level, high taxes and higher uncertainty about taxes are undoubtedly inhibiting entrepreneurship, but to what degree is unknown. The dominant factor may be new regulations on labor…. According to Labor Department data, the typical American today only takes home 70 percent of compensation as pay, while the rest is absorbed by the spiraling cost of benefits (e.g., health insurance). The dilemma for U.S. policy is that an American entrepreneur has zero tax or regulatory burden when hiring a consultant/contractor who resides abroad. But that same employer is subject to paperwork, taxation, and possible IRS harassment if employing U.S.-based contractors.”
What happened to the United States being the land of opportunity where anyone could create a small business that may some day grow to be a huge job creator?