A quick look at some recent research that suggests a little governmental encouragement boosts the rate of start-ups.
Can the unemployed create their own jobs? Recent studies of two experimental programs found that a little governmental encouragement can do a lot to boost the start-up rate among the recently unemployed. What's more, in follow-up studies done more than a year later, the new businesses didn't have higher failure rates than others -- so not only were more companies started, but more survived the first year.
The two experiments, conducted by the U.S. Department of Labor in the states of Washington and Massachusetts from 1989 to 1993, combined business training with a waiver of the normal requirement that unemployment-benefits recipients look for work. Instead, to receive benefits, participants in the pilot programs had to work on establishing their businesses. The resulting start-ups were then compared with those of a control group of the unemployed that had not received special encouragement to start businesses. The results were dramatic: with the type of encouragement the programs provided, the start-up rate nearly doubled in Washington and increased by almost two-thirds in Massachusetts. The follow-up surveys showed that businesses in the control groups and the pilot programs failed at about the same rate -- but because the people in the experimental group had started more businesses, more survived.
Although only 2% to 4% of the jobless were interested in the self-employment option, the programs were effective enough that last year's North American Free Trade Agreement included a provision allowing states to offer self-employment options as part of their unemployment-benefits programs. Several states have already introduced legislation to do so.