Wednesday, September 14, 2011

Entrepreneurship and the American Jobs Act

It's a really slow news day (meaning that nothing's gone ka-BOOM in Europe yet), so I thought I'd share what I think is one of the more interesting proposals within Obama's recently revealed jobs plan. Surprise! It involves entrepreneurship, which I'm always talking about here.

For what it's worth, in general I don't think the new jobs plan is a particularly good one--it seems to be mostly window-dressing to save Obama's job next year, and it does little to solve the significant structural problems in our current job market--but this specific recommendation seems to be a step in the right direction. (This guy takes a comically long time to get to the point, so skip down a bit if you're impatient like I am. Seriously, this guy is killing's like reading Dickens. Skip ahead.)
It’s no big secret that young Americans are hurting. Youth unemployment is double the national average, college debt loads and defaults are the highest in history, and only 25% of young people had traditional jobs lined up upon graduation this year.
Thankfully, alongside these chronic epidemics, another trend has emerged: the growth of entrepreneurship as a viable career path for young people.
However, the vast majority of recent college graduates and twenty-somethings face significant hurdles when it comes to starting a business, especially when it comes to obtaining startup capital. Mind you, I’m not talking about hundreds of thousands or millions of dollars — or in most cases even tens of thousands. It takes just the few thousand dollars to start the most basic service-based businesses. But banks require collateral and credit history, a rare combination for eager upstarts. Micro-loan programs (that work as intended) are few and far between. And, in many instances, “friends and family” have their own financial woes to deal with. Bottom line: None of these sources is a reliable or scalable solutions for the vast majority of young Americans looking to join the entrepreneurial ranks.
But it seems the president’s American Jobs Act may have just the solution young people need to transition from unemployed to self-employed...
The provision I’m talking about is reform to federal unemployment insurance. (Yes, I’m serious. Hold the skepticism, please.)
Traditionally, unemployment insurance has only been made available to unemployed individuals who were actively seeking a traditional job. These funds could only be accessed for personal use; all other uses — such as starting a business — were strictly prohibited, and only job seekers qualified for these funds. Individuals with a desire to seek self-employment opportunities were ineligible for any unemployment money.
Now, imagine if aspiring entrepreneurs — individuals whose main priority is to hire themselves, build revenues and hire others to grow — had access to this sort of guaranteed startup capital. Well, under the American Jobs Act, they will.
According to Obama’s plan, all 50 states would be able to establish Self-Employment Assistance (SEA) programs, enabling aspiring entrepreneurs to utilize unemployment insurance money to fund their businesses for up to 26 weeks —providing roughly $10,000 to $13,000 in assistance, or what I would refer to as “seed funding.” Not a bad deal when you consider that the cost of most startups, especially most service-based businesses and tech ventures, have relatively low startup and operating costs. In essence, the president’s plan will create a guaranteed source of startup capital for businesses without any of the traditional credit and collateral requirements as barriers — or the need to give away equity to investors. Someone pinch me...
SEA has a proven track record of success in states that are both red and blue. According to a Department of Labor study of state self-employment assistance programs, SEA participants were 19 times more likely than eligible non-participants to be self-employed. In a handful of states where SEA programs are active, such as Arizona and Maryland, hundreds of businesses and new jobs have been created as a result. In Oregon, nearly half of the successful SEA entrepreneurs have each created an average of 2.63 new jobs.
Though this program is geared toward people of all ages who wish to start their own businesses, I would argue that young people are the best suited to maximize its advantages. Members of older generations tend to have families and other financial obligations, making it more difficult for them to transition into the roles of entrepreneurs. Young people who have fewer commitments, and therefore more flexibility, can more easily adapt to less expensive lifestyles.
You guys still with me here? No, our guy put you to sleep? Okay, sorry about that. But I really am excited about the fact that the federal government finally seems to be appreciating the need for entrepreneurship and innovation to get us out of our now decade-long economic malaise.

Now if they could just double or triple the size of this program, and cut back on all of the thousands of programs that are basically just handouts to large corporations, that'd be great. Good talk.


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