Mike Whitaker

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Entrepreneur or Unemployed? – NY Times Article

I have commented that entrepreneurship is sometimes chosen unemployment.

Some folks don’t have a choice lately. See the stats.

Read the New York Times Article.

The Article

Typically each year, large numbers of Americans leave their old jobs to find new ones. Unemployment rises during recessions mainly because companies hire fewer workers, not because they lay more people off. But this Great Recession has been different. Layoffs by mid-sized and large companies have surged while hiring has almost disappeared. These companies have used the sharp downturn as an opportunity to cull their payrolls for good — substituting labor-saving technologies and outsourcing to workers abroad or to contract workers here. This explains why almost half of America’s unemployed have been jobless for more than six months — a greater proportion than at any time since the Great Depression. It also explains why so many people like George have joined the ranks of the self-employed.

Yes, a growing number of Americans went out on their own before the recession, but clearly their numbers have vastly increased. While some are happy about their new status, most are worse off than they were before. It’s one thing to be a contingent worker in good times and when you’re young; quite another in bad times when you’re middle-aged.

Still, many would rather view these people as entrepreneurs and owners of startup businesses, and see their major challenge as getting adequate credit. Congress’s Joint Economic Committee reported last week that small businesses continue to face tight lending standards. “Small business is the job-creation engine that powers this economy,” said Representative Carolyn Maloney, the New York Democrat who heads the committee. Democrats will be pushing bills to make loans more available to them.

Indeed, America’s startup businesses do need better access to credit. But many entities that look like small new businesses are actually self-employed people who need more than bank loans. They need predictable income and benefits.

For starters, they could use what might be called “earnings insurance” that would pay for up to two years part of the difference between what they earned on the old job and what they earn now on their own. Employed workers would contribute to the insurance fund through their payroll taxes, as they do with unemployment insurance, but the total bill for benefits would be unlikely to rise because earnings insurance would get them back to work quicker and thereby reduce the number of weeks they relied on unemployment benefits.

The self-employed also need more help saving. Since they can no longer depend on tax-free corporate matches to their 401(k)’s or I.R.A.’s, they should be entitled to tax credits that match them. Fortunately, thanks to the reform package passed by Congress, they will have more help getting affordable health care, as they will be able to use their aggregate bargaining power in medical exchanges to push down insurance costs.

New businesses are vital to job growth, and entrepreneurship does fuel the economy. And surely some of America’s new independent workers will build their own companies. But when the economy is still so hard on so many, it’s important to distinguish between entrepreneurial zeal and self-employed desperation.

Robert B. Reich, a former secretary of labor, is a professor of public policy at the University of California, Berkeley, and the author of “Supercapitalism.”

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