Discouraging signs that start-ups are no longer creating jobs at the rate they once did.
How quickly we forget that the 1980s were supposed to have been a decade of massive unemployment, as the number of people entering the job market exploded and big companies lost jobs on a scale previously unimaginable. Start-ups and small, growing companies saved us from such a fate back then, but don't count on them to bail us out this time around. Not that the entrepreneurial sector is doing so badly. Many growth companies seem virtually recession-proof, and the more fleet of foot are profiting from their competitors' miseries. But in talking with chief executives around the country, I sense a new attitude toward hiring, and it does not bode well for the economy.
For one thing, we are clearly feeling the effects of the employee-litigation epidemic, abuse of workers' compensation, and skyrocketing health-care costs. Already battered by a flood of age- and sex-discrimination suits from employees, growth companies are concerned that the Americans with Disabilities Act and the Civil Rights Act of 1991 will generate more of the same. Meanwhile, they remain acutely aware of the need to maintain strategic flexibility. The result: even the most adventurous Inc. CEOs are looking for arrangements with workers they can get into and out of easily.
All of this could have broad ramifications. In the '80s growing companies generated about half of the new jobs that kept the economy humming. (The other half came from start-ups.) Now, as those companies become increasingly wary of adding to their payrolls -- even while they continue to prosper as businesses -- their successes don't necessarily provide the critical boost to employment we've come to count on.
Equally discouraging are signs that start-ups are no longer creating jobs at the rate they once did. Yes, there has been a recent upsurge in start-up activity (something we anticipated in this column back in October of last year [ [Article link]]). But judging from my discussions with people who have launched companies in the past year or so, I doubt the current crop of start-ups is as potent a source of new employment as the generation of the '80s. Uncertainty about the economy is only one factor. More important, I believe, are changing demographics and values. The typical '80s entrepreneur set out to build a company that would quickly outgrow the garage and then keep on expanding. These days I run across many more start-up entrepreneurs who enjoy working out of their homes and whose goals are not so much to build companies as to replace income from a prior job. Most of these men and women are in their thirties and forties, and many have left managerial careers with established companies in hopes of gaining more control over their personal economic security as well as their time. For them, the responsibility of meeting a payroll is a threat to that goal. By going out on their own, they may find what they're looking for, but they aren't likely to have anywhere near as great an impact on job creation as their counterparts in the '80s did.
What troubles me most about these trends is that they reflect deep-rooted social, cultural, and economic changes. As a result, they are largely beyond the reach of government policy. No matter who is elected president this month, he is going to have a hard time getting at the underlying causes of our current economic stagnation -- assuming he is even aware of them. The media haven't helped much on that score. For all the clamor about the dearth of new jobs, it is amazing how little attention is still paid to the business sectors that created all the jobs in the '80s. That may change, of course, if the economy remains in its current state. But it would be ironic if what finally forced policymakers and journalists to learn about the inner workings of America's job-generation machine was the machine's shutting down.