We Need A Startup President Who Knows How Jobs Are Created

Economy: How can the next presidential get the American job machine functioning again? One way is establish a policy environment that incentivizes business startups, which have fallen hard under the current administration.

President Obama tells small-business owners they "didn't build" their companies. But they know better. And they are also aware of the important role they play in employment.

Small businesses employ about half of all U.S. workers and they create the majority - by some estimates 80% or more - of the new jobs.

Rather than trying to convince entrepreneurs they're not responsible for their own success, Obama should be telling them how much he's done to make it easier to launch new companies.

But he can't. Consequently, just like businesses sitting on cash and refusing to hire due to the uncertainties spread by this White House, entrepreneurs have been sitting out the recovery that began only months after Obama took office.

"The state of entrepreneurship in the United States," laments economist Tim Kane, "is, sadly, weaker than ever."

In a paper for the Hudson Institute, Kane cites a Bureau of Labor Statistics journal that says, "New establishments are not being formed at the same levels seen before the economic downturn began, and the number is much lower than it was during the 2001 recession."

Using Census Bureau data, Kane determined that startup jobs per 1,000 Americans were steady under both Bush presidencies and that of Bill Clinton - averaging about 11.1. The range was from 11.3 under the first President Bush to 10.8 under the second. The rate during the Clinton years was in between at 11.2.

It's a different world today, though. Under Obama, the rate has plummeted to 7.8 startup jobs per 1,000 Americans. While the trend was already falling under the last years of George W. Bush, the "collapse," as Kane calls it, has occurred under Obama. The rate sank fast in each of his first three years (2012 data aren't available) even though the recession ended in June 2009.

Kane says there should have already been a rebound in startups by now, given America's "wider technology frontier," our wealth that allows "individuals to explore rather than merely work to survive," and "the shift to services" that "requires less startup capital than manufacturing or agriculture." Yet the numbers remain poor.

Kane says his report cannot explain the decline. But he does offer some anecdotal evidence.

"The U.S. policy environment," he says, "has become inadvertently hostile to entrepreneurial employment."

High taxes are one problem, with the "dominant factor" possibly being "regulations on labor." ObamaCare is perhaps the worst offender with its "sweeping alteration of the regulatory environment that directly changes how employers engage their workforces."

Kane also cites a federal crackdown since 2009 from Obama's IRS "on U.S. employers that hire U.S. workers as independent contractors rather than employees, raising the question of mandatory benefits."

"New firms," explains Kane, "tend to use part-time and contract staffing rather than full-time employees during the startup stage."

There are local roadblocks, as well. Kane notes the rise of occupational licensing that "is destroying startup opportunities for poor and middle-class Americans."

During his research, Kane discovered a new fact that he found surprising: That "startups create essentially all net new jobs."

"Existing employers, it turns out, tend to be net job losers, averaging net losses of 1 million workers per year. Entrepreneurial firms create a net 3 million jobs per year on average."

The president has tried to bully companies into hiring, but the big problem is the lack of hiring from companies that don't exist. This has to change.

The country needs a president and policymakers who know what it takes to put startups in business.