Two-thirds of net new jobs are created by small businesses. However, the National Bureau of Economic Research found that once the age of a business is taken into consideration, there is no systematic relationship between firm size and growth.
According to the New York Times, nearly all job growth occurs when businesses are starting up. When businesses mature, job expansion essentially stops.
Our unemployment rate is at 9.6%. Any serious solutions for creating new must focus on how to create new start-ups and nurture new firms that are in their infancy.
Some argue that raising long-term capital gains, like the Obama administration is proposing, can hurt the prospects of start-ups. Since angel investors calculate taxes when deciding how much to invest, they may decide to fund less start-ups.
On the other hand, most new businesses make little or no income. Entrepreneurs focus on making it big, not on taxes. The New York Times notes that when Microsoft started up, the top income tax rate was at 70%.
One cheap way of fostering start-ups is by granting more residence visas to skilled immigrants, especially those who attend American universities. On February 24, 2010 Senators Kerry and Luger proposed the Startup Act of 2010, which would permit immigrant entrepreneurs to stay or immigrate into the United States if they have secured “significant” funds to start a new company. Since immigration is a sensitive issue and the mid-term elections are upon us, this bill seems unlikely to pass soon.
Start-ups are always in need of capital. Unfortunately, banks have tightened their lending to start-ups. Since the private sector is unwilling to lend, the government may have to step in and start lending to start-ups.
Another possible solution is to provide funding for incubators. Currently, there is an excess capacity of commercial real estate. The government should provide tax breaks to landlords to provide below market leases to incubators. Incubators would be required to house no less than three different businesses and be in business for less than 3 years.
What to you think? Is funding incubators a good idea? What are your solutions for job growth?
Frederic R. Abramson is the principal of the Law Office of Frederic R. Abramson, which represents start-ups.