Study Finds Entrepreneurs Not Likely to Hire

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July 20, 2004 -- Don't expect entrepreneurs to do anything about the labor market. According to a new study, entrepreneurs are just about the last ones creating new jobs: A full 80 percent of all entrepreneurs in the U.S. anticipate hiring fewer than five employees over the next five years.

The latest findings come from the Global Entrepreneurship Monitor, a joint research project of Babson College and the Kauffman Foundation, each of which closely tracks entrepreneurial trends.

The group estimates that 11.9 percent of Americans were creating or growing new businesses in 2003, up from 10.5 percent in 2002. The increase in activity was attributed to a "rise in activity and enthusiasm" among individuals and outpaced the general economy due to a "passion to improve conditions," according to the report.

The tepid labor plans were seen as a result of slow flow of venture capital into these companies. According to the study, entrepreneurs reported an 80 percent decline in VC funding in the last three years. Making up the lag was a group designated as "informal investors" - private citizens who had invested in someone else's business in the last three years. This group made up a full 5 percent of all Americans, a figure that has remained constant since the group's last report in the fall.

"If informal investment dried up, entrepreneurship would wither," said William Bygrave, who heads Free Enterprise Studies at Babson College.

Other findings in the report included a growing gender gap, in which 1.9 men were active entrepreneurs for every woman, a slight increase over 2002. It also found that more entrepreneurs are young and male, though they are ethnically diverse. Of those between 25 and 34, 15.7 percent were involved in starting a new business, compared to 8.2 percent of women those ages.

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