The May 2013 jobs report was encouraging but showed that the economy was not growing enough for employers to hire more workers. I join with millions of other Americans in giving a sigh of relief that the economic recovery is gaining steam. After being on the brink of a depression and then in a deep and stubborn recession, the U.S. economy’s small but positive economic growth is something to be happy about. The unemployment rate continues to stay below 8% and job creation numbers are up, as are consumer spending and housing sales. This is all good news.
The bad news is that while there has been a rise in the number of new jobs, the pace of job creation has not been strong enough to bring America back to full employment. Even though the economic recovery is admittedly slow, isn’t it reasonable to think that in the next few years we should be able to reach full employment? No, say a number of experts who believe that full employment may be several years away.
One of the more troubling problems for the economy to reach full employment is the drop in new company start-ups, which are engines of job creation. Risk taking is an essential factor in economic growth and has fueled America’s economic growth since the Colonial period. However, according to recent research, Americans are becoming risk averse. Not only is the number of new company start-ups down, fewer Americans are taking the risk of relocating to areas with low unemployment to look for jobs.
This pull back from risk taking is thought to be a factor in the U.S. economy’s slow recovery from the recent financial downturn and has played a role in delaying recoveries from past economic downturns in the 20th Century. Highly regarded experts on entrepreneurism at the Kaufman Foundation, Harvard, among many others, are seeing a pattern. More Americans are placing a higher value on security and less willing to take risks (Read more about this in Risk-Averse Culture Infects U.S. Workers, Entrepreneurs, Wall Street Journal, June 3, 2013 http://online.wsj.com/article/SB10001424127887324031404578481162903760052.html).
America’s spirit of entrepreneurialism is certainly far from dead. In parts of the country where new business start ups are common, such as the San Francisco Bay Area, jobs are both created and destroyed by the cycle of new ventures and failed businesses, but there are still net gains in jobs. But in other parts of the country that don’t have this level of entrepreneurial activity and rely on existing businesses for job growth, the net increase in jobs is much lower, according to research conducted by Harvard economist Edward Glaeser and two colleagues. The overall affect is that some geographic pockets of the country are benefiting from job growth but are not necessarily drawing workers from other less productive areas of the country to take those new jobs.
A feeling of confidence in themselves and the economy is what drives risk taking by an entrepreneur introducing a new product or service or the laid off worker migrating to a state with a strong economy like Texas to find a job or the employer considering whether to hire more workers.
For all of the talk by commentators on the effectiveness or ineffectiveness of the Administration’s fiscal and monetary policies to stimulate the economy, the biggest confidence booster would be for the U.S. Congress to move beyond political ideology and find common ground to pass legislation in the near-term to address the budget deficit, the looming entitlement crisis and to make much need reforms to the federal tax system. This would go a long ways towards restoring confidence in the future and boosting consumer demand so that entrepreneurs, job seekers and employers will take risks to propel the economy by starting new businesses, creating new jobs and hiring more workers.