The current recession is leading more people toward entrepreneurship, according to a new study. Robert Fairlie of the University of California Santa Cruz found that in every month in 2009, 340 out of every 100,000 American adults founded a business. In comparison, on average, 290 adults a year started new businesses in the ten years prior to the recession.
Dr. Fairlie saw a clear correlation between unemployment and business creation. He focused on cities with poor labor markets. For the past few years, as the labor market conditions in an area deteriorated, entrepreneurship increased in tandem.
His findings indicated that unemployed people are more likely than salaried workers to start businesses. After losing their jobs, people might decide they have nothing left to lose, so starting a business bears little risk. For the unemployed, there is no “opportunity cost” of giving up a steady salary to enter a business venture.
Entrepreneurship has not increased as rapidly as the unemployment rate has. From 2006 to 2009, unemployment increased by a whopping 100%, while business creation increased by only 16%.
New business growth impacts positively on the general U.S. economy. Even though many businesses are struggling in today’s recession, many will become wildly successful. In fact, 57% of current Fortune 500 companies were started during recessions or bear markets.
Of course, some businesses will never create new job opportunities. John Robertson, senior economist at the Federal Reserve Bank of Atlanta, stated that many new businesses are simply independent contractors offering services to other companies. Additionally, E-bay businesses, which tend to have sole proprietors and no employees, are popular entrants to the new business field.
The seemingly endless recession is yielding at least one positive byproduct: the creation of new businesses that contribute to the innovation and wealth of the U.S. economy.