Small Business: The New “Big Dog”

Historically, the main driving force of the US economy has been the goods-producing sector with manufacturing (mainly automotive) and construction (mainly housing) being the “big dogs”. These big dogs have huge tails that influence many other industries in their direct and indirect supply chains during both upward and downward economic trends. Consequently, most decision-makers focus on these big dogs as opposed to their purported tails—small business. From a Jobenomics perspective, small business has evolved to become the new big dog and will remain so, at least for the remainder of this decade.

Over the last thirty years, goods-producing industries have declined 25%, where service-providing industries, mainly small business, have increased 81% (see Jobenomics blog entitled, 30-Year US Employment Trends). Today, according to the US Bureau of Labor Statistics, US manufacturing employs 11.8 million and construction 5.5 million, which is 3.8% and 1.8% of the US population (312 million). On the other hand, service-providing industries employ 91.6 million or 29.4% of the US population. Of this 91.6 million, 77.4 million or 85% are small businesses of which 55% (42.9 million) are very small businesses with less than 50 employees (source: ADP). Based on these numbers, very small business is the big dog now.

The question for policy-makers, decision-leaders, talking-heads and all-Americans is whether this new big dog can survive without the former big dogs. The answer is probably not. However, the question should not be an either/or question. America needs all its dogs in the economic fight. Americans need to focus on small business as the new economic champion giving old dogs time to heal, grow and effectively compete again.

The biggest reason that small business can compete globally is largely due to technology. Small information, technical, financial, professional and trade service firms can now compete globally due to broadband communication and advanced information technology systems. Collectively, little has become big. 77.4 million service-providing, small business employees make it so.

Share this:

30-Year US Employment Trends

To see where one is going, it is often useful to look back to where one has been. Today, the common perception is that the private sector workforce has been decimated and the federal government workforce has exploded in its place. These perceptions are only partly true. A deeper understanding is important for healthy economic and policy decisions. This blog looks back 30 years. The next blog will deal with recent US employment trends so far this decade, the “10s.

From a Jobenomics perspective the three most important employment sectors include: private sector service-providing industries, private sector goods-producing industries, and the government sector (federal, state and local). The 30-year employment trends (shown above) were calculated by the Bureau of Labor Statistics.

Private sector service- providing industries have grown significantly at 81% over the last three decades in terms of raw numbers. Even if these numbers were adjusted relative to 36% US population growth (230 million in 1981 to 312 million today), the growth in this sector is still significant. Private sector service-providing industries include:

Trade, transportation, and utilities that employ 25.1 million Americans and have experienced a growth rate of +36%.
Professional and business services employ 20.2 million with a growth rate of +162%.
Leisure and hospitality employ 13.3 million with a growth rate of +96%.
Financial activities employ 7.6 million Americans with a growth rate of +49%.
Information (telecommunications not including internet, publishing, motion picture, broadcasting, data processing/hosting) industries employ 2.7 million with a growth rate of +13%.
Other services (repair and maintenance, personal and laundry services, membership associations and organizations) employ 5.5 million with a growth rate of +93%.

The central focus of the Jobenomics movement is on the private service-providing sector since it historically has been the most robust and is projected to the most robust in the future. Additionally, this sector, combined with the advent of “big data age” and new 21^st Century networking solutions, will be the one most advantageous to small, emerging and self-employed business creation. Small business has been responsible for virtually all of the new US jobs this decade (see previous blog entry entitled, Small and Self-Employed Businesses Produced Almost 100% of Net New Jobs This Decade). If America wants to maximize jobs creation, it should focus on small, IT-empowered, services businesses that have enjoyed double and triple digit growth rates.

Private sector goods-producing industries have deteriorated by 25% over the last three decades. If adjusted for US population growth deterioration of this sector exceeds 50%. Private sector goods-producing industries include:

Manufacturing (durable goods) employs 11.8 million with a negative growth rate of -37%.
Construction employs 5.5 million with a growth rate of +36%. Note: construction has taken a massive hit since the Great Recession in 2008 but is still up from 1981.
Nondurable goods (food manufacturing, textiles, apparel, paper/plastic/rubber products, etc.) employ 4.4 million with a negative growth rate of -37%.
Mining/logging employ 0.7 million with a negative growth rate of -35%.

While Jobenomics acknowledges the importance of the goods-producing sector, with the exception of foreign owned businesses coming to the USA, this sector is unlikely to contribute more than 10% towards the Jobenomics goal of 20 million new private sector jobs by year 2020 (20 by 20). In this author’s opinion the manufacturing and construction industries are likely to continue to decline despite all the Washington rhetoric. US manufacturing suffers from high government regulation as well as high labor costs relative to foreign goods-producing industries. Washington’s promises of a less austere regulatory environment and fair trade agreements will take years, if ever, to enact and implement. US construction is highly dependent on the housing industry that will remain depressed for years to the over abundance of foreclosures and short sales. Washington efforts, like the Home Affordable Modification Program (HAMP), have failed to reduce the plight of underwater homeowners and foreclosures.

Consequently, the Jobenomics near-term emphasis in the goods-producing sector is on bringing manufacturing back to America by incentivizing foreign-owned businesses to manufacture a greater percentage of their products in the USA. In the 1980s, the Japanese were incentivized to start numerous US automobile plants that now employ 150,000 US workers. The Jobenomics Center for Industrial Development initiative is designed to attract foreign businesses and foreign investors via the US Customs and Immigration Service EB-5 foreign investor program. The Jobenomics goal is to create 3 million new US jobs via foreign-owned corporations. If foreign corporations want access to America’s $14 trillion annual GDP, then it is reasonable to” incentivize” them to build in America.

The government sector (federal, state and local) has grown by 34% over the last three decades. When adjusted for the increase in population, government is employing approximately the same percentage of people per population today as yesteryear.

Contrary to popular perception, the US federal government has lost -5% over three decades. In 1981 the feds employed 2.96 million, whereas in 2011 it employed 2.82 million. However, these numbers do not include the explosive growth of government contractors which employ approximately 10 million people who represent a significant portion of the outsourced government jobs to the private sector.
State government and local governments employ 5.1 million and 14.2 million and have grown by 40% and 46% respectively over the last three decades. However, due to the Great Recession, and its concomitant decrease in tax revenues, state and municipal governments are laying off significant number of personnel during the last several years. If the US economy reenters recession, a double-dip, it is not inconceivable that state and municipal governments will have to lay-off 2 to 3 million more employees to balance budget shortfalls.

The Jobenomics Plan for America calls for zero growth in government. This zero growth goal should not be hard to achieve since all levels of government will continue to shed jobs as outlays continue to outpace revenues for the foreseeable future.

Share this:

Economic Recovery Scenarios

There is much debate among economists and policymakers about the shape of the US recovery. From a Jobenomics perspective, there are three scenarios: V, W, and L or declining-L.

V-Shaped Scenario. The V-shaped scenario is the predominant historical scenario. The premise of a V-shaped recovery is that the market rebounds after hitting bottom, and returns to or exceeds previous highs. Eight out of the nine recessions that the US has experienced since WWII have been V-shaped recoveries.

Due to rebounding US stock markets (Dow, S&P and NASDAQ), policymakers tout the V as proof that recovery is underway, and that government stimulus packages are working. Economists further argue that the normal business cycles are a series of peaks and troughs. Recessions (troughs) are distinctly shallower, briefer, and less frequent than expansions (peaks). Since the US economy is still the largest and most powerful in the world, Americans should expect a peak greater than before. While the current recession (aka, The Great Recession) has been bad, our current economic balance sheet is no worse than it was a decade ago.

W-Shaped or Double-Dip Scenario. The W-shaped scenario happened during the 1975 to 1982 recessionary era. It also happened during the Great Depression. The premise is the market rebounds, then decreases, and rebounds again returning to historic highs. The W is a double V, also known as a double-dip recession. After a false start, optimism returns to the marketplace. Past W-shaped scenarios were largely caused by excessive or inappropriate government policies and intervention. A future double-dip recession could be induced by another domestic financial crisis or an international event.

L- or Declining-L Shaped Scenario. The L-shaped scenario has not happened in recent US history, but has occurred numerous times in other countries, like Japan and Greece. The L-shaped recovery premise is that the market does not rebound, or takes a significant amount of time before it rebounds. The “declining” L postulates that the economy erodes, and in extreme cases, collapses. The square root symbol is a third variant, where the recovery dips, recovers slightly (due to stimuli), and then flattens. Economists who believe that the current economic crisis has been caused by flawed economic principles endorse the L. Numerous anti-capitalists also ascribe to this point of view since they believe that the American-era is over, and is in decline. Even V and W advocates acknowledge that multiple crises, or a catastrophic event, could cause an L, or even a declining L, depending on the severity of the crisis or event.

A reasonable case can be made for each scenario, which implies that there is 2/3 chance that the US economy will get worse in 2012. This reflects the dour mood of Americans, who by a 2/3 margin believe that the US economy is moving in the wrong direction. It is the author’s opinion that the US economy will continue to struggle with low GDP and high unemployment rates, but will eventually recover if there are no major crises. However, this is a very large “if”. Dark clouds are on the horizon. These clouds include a deadlocked political environment in Washington, eurozone crisis , conflict with Iran, a massive energy crisis ($300 barrel of oil), a second major real estate crisis, layoffs by state and local governments, terrorist (cyber, or physical) attacks, civil unrest, or an unanticipated “black swan” event.

Consequently, if American leadership (Bernanke, Geithner, Obama and Congressional leaders) make the right monetary (the Fed) and fiscal (the Congress) decisions, our economy shouldslowly recover (V-shaped recovery). If a financial, manmade, or natural crisis occurs, America is likely to suffer a
double dip (W) recession that will lead to economic malaise and higher unemployment rates. If multiple crises occur, the US economy could enter a prolonged era of recession (L), or depression (declining-L), which is an increasingly likely prospect for the eurozone. 2012 will certainly be a pivotal year for America and the other Western economies.

Share this:

35% “Functionally” Unemployed Rate

Every week, US unemployment numbers make headlines, but few Americans understand what these numbers actually represent. More importantly, these numbers constitute a driving force behind many policy and economic decisions. Jobenomics believes that policy decisions should be made on those functionally unemployed, which is a much better indicator of economic distress. The total number of US “functionally unemployed” is 110.6 million people, or 35% of the US population.

The Bureau of Labor Statistics (BLS) calculates six unemployment categories (U1 through U6) every month. The three most often reported categories are the Long-Term U1 Rate, the Official U3 Rate, and the Total U6 Rate of unemployed and underemployed. As shown above, in November 2011, the U1/U3/U6 rates equated to 5.1%/8.6%/15.6% or 7.8/13.7/24 million people unemployed respectively. These rates and numbers are calculated as a percentage of the US Civilian Labor Force, which is currently 153.9 million Americans. The BLS defines the US Civilian Labor Force as citizens, who have jobs or are seeking a job, are at least 16 years old, are not serving in the military and are not institutionalized.

The U3 “Official” Unemployment Rate is the rate that is most often watched and reported. In October 2011 the U3 Rate was 9%. In November 2011, it dropped 0.4% to 8.6%. This drop made headlines around the world as a potential sign of US economic recovery. However, buried in the newsprint, 300,000 Americans were also reported to have “simply quit looking for work”. Where did these people go? The BLS provides a little light on where these people went in the Table A-1 “Not In Labor Force” category. This category is the BLS equivalent of limbo for “those who have no job and are not looking for one”. From a Jobenomics perspective, these unfortunate souls joined the ranks of the functionally employed and still need to be supported by government welfare programs, by families, or by other means, like crime, in lieu of having a job.

As of November 2011, the Jobenomics “functionally unemployed rate” equates to 35% of the US population or 110.6 million people. 35% is derived by dividing 110.6 million by the total US population figure of 312.7 million, as reported by the US Census Bureau. 110.6 million is calculated by adding the BLS’ U6 number (24 million) and the BLS’ Not In Labor Force number (86.6 million).

Understanding the functionally unemployed rate of 35%, or 110.6 million Americans, is a much better indicator of economic distress, than the much lower numbers indicated by U1 through U6. Even better, decision-makers and
opinion-leaders need to balance private sector employment taxpayer numbers (currently 96 million, not including government contractors who rely on taxpayer funding) against 110.6 million functionally unemployed who need
familial or governmental economic support to survive.

Share this:

Small Business Produces 99% of Jobs

Small and Self-Employed Businesses Produced Almost 100% of Net New Jobs This Decade

Since the beginning of this decade, January 2010, to November 2011, the small business sector has produce 98.7% of all the net new jobs in America. As shown in this chart, small business (employing 499 people or less) accounted for 2.6 million jobs, where as big business (500+) accounted for only 35 thousand jobs. With better government and financial institution support, small business would have added significantly more jobs.

Share this:

Small Business Emphasis

Emphasis on Small and Self-Employed Businesses

The 20 by 20 goal for small, emerging and self-employed is 10 million. This sector is currently under-exploited. With government hiring incentives, low cost loans, tax deductions, and other support, this sector should flourish.

Small business is the US economic backbone. There are 6 million US small businesses and 21.7 million self employed businesses that:

Employ 70 million US citizens
Represent 99% of US firms
Generate 90+% of all new jobs
Pay 45% of total US payroll
Produce 13 times more patents than large firms
Produce 30% of all exports

These small businesses and self employed businesses produce $6 trillion annual revenues, which equates to the 2nd largest economy in the world.

The Jobenomics top initiatives in this important category are: establishing community-based business incubators, incentivizing the growth of women-owned businesses, developing a national direct-care program, developing a real estate owned (REO) private equity/property management initiative, and encouraging the establishment of business ministries.

Share this:

Too Few Pay for Too Many

Too few pay for too many

Not counting government and government contract employees, 96 million are employed in the civilian workforce. This workforce is financially responsible for 213 million people (178M non-working and 35M government) who depend on familial, government or retirement income. Historically, families took care of families, but times have changed. Nuclear families no longer represent the dominant American household. Public assistance now often fills the gap. Public assistance and public service have grown to unsustainable numbers.

51 million people receive Social Security payments.
45 million are Medicare beneficiaries.
59 million receive some form of Medicaid.
44 million receive food stamps monthly
37 million fall below the poverty level.
26 million are unemployed.

Share this:

Business Emphasis

From a Jobenomics perspective, America needs to commence the 20 by 20 campaign by changing our negative attitude towards business. At best, Americans have become ambivalent towards business. Business is taken for granted. It is often looked upon as a necessary evil, as opposed to an honorable pursuit. Anti-business sentiment is pervasive with its epicenter emanating from Washington. Anti-business sentiment causes big businesses to be cautious, limit hiring, close operations, and outsource overseas. Anti-business sentiment encourages small business to go out of business, limit hiring, and defer from starting new enterprises. Equally important, anti-business sentiment discourages business investment which is needed to start new enterprises and grow existing businesses.

There is an old adage that states there are three ways to make money: (1) by your own hands, (2) by someone else’s hands, and (3) by making money-on-money. Over the last three decades, making money-on-money became the first choice of Americans from Wall Street, to Main Street, and even to Washington. Wall Street over-leveraged exotic financial instruments. Main Street over-extended itself by buying oversized homes, investing in the stock markets and 401Ks, and maxing out credit. Washington not only let this happen, but jumped in and became the largest trader of mortgage-backed securities on the global secondary market.

By turning to speculating and investing, America neglected producing and manufacturing. As a result, over the last three decades, America deteriorated from the greatest creditor nation in the world, to the largest debtor nation in the world.

The recent economic crisis serves as a wake-up call. Unfortunately, Americans are turning to government, rather than business, for rescue. Government emphasis is overwhelmingly on the unemployed. To make matters more precarious, anti-business government policies will hasten further decline in private sector employment.

Share this:

The Solution

The only meaningful way to fix the American economy involves the economics of jobs and revenue creation—jobenomics.

In order to achieve economic security, America needs to create the number of jobs that we did in the 1970s, 1980s and 1990s. The US economy cannot afford another decade of negative jobs growth, as occurred in the 2000s. 20 million new private sector jobs are needed by 2020 (20 by 20). Jobenomics is essential to achieve the goal of 20 by 20 in order to preserve our way of life and the American dream.

20 million is the minimum number, since it will provide the number of new jobs required for new workers entering the work force (approximately 16 million) and about half the workers (4 million) who lost their jobs during the Great Recession. 20 million new jobs will produce the tax revenue to keep America’s economic engine running. Creating hundreds of thousands of new jobs is not enough. 167,000 new private sector jobs per month are needed to achieve the 20 by 20 goal.

American innovation, ingenuity and entrepreneurship are the keys to a prosperous future where everyone who wants to work can find a job. 20 million jobs by 2020 is a realistic goal, if American leaders get behind the concept and generate public support for such a campaign. Jobenomics outlines a potential structure for such a campaign, as well as a framework for developing an austerity plan in the event that unwanted or unanticipated crises interfere with the jobs creation process.

Share this:

The Problem

America is undergoing a stealth employment crisis—yes, employment rather than unemployment. Of the two crises, the employment crisis is far more important to resolve.

US private sector employment is collapsing at a greater rate than most people realize. Of the 96 million, 83% are employed with service-providing industries, and 17% are in goods-producing industries (manufacturing 11%, construction 5%, and 1% mining/logging). As a percentage of the total population, the total private sector workforce declined 13.7% in the last decade. In addition to the 96 million employed in the industrial sector, approximately 2 million are employed in the agricultural sector, which is now less than 1% of our total population.

The US used to be the greatest manufacturing country on earth. As a percentage of the total population, US manufacturing has declined 55% in the last three decades. During the 2008-2009 Great Recession, manufacturing lost 5.6 million of the total 8.4 million job losses.

In the 19th century, agriculture was America’s dominant form of employment. In the mid 20th century, US manufacturing provided of 1/3 of all jobs in the US. Today, agriculture and manufacturing represent less than 5% our population for a total of only 14 out 309 million citizens. These trends cannot continue if the US wants to recover economically and return to prosperity. It is imperative that we stop any further decline in these critically important areas. Unfortunately, it will be difficult to significantly increase domestic agricultural and industrial employment. Therefore, America must look to the next generation of jobs, which will be predominantly information-age jobs with emphasis on small business in the services-providing sector.

Share this:

Jobenomics 20 by 20 Campaign Plan

Jobenomics’ Plan for America has prescriptions for small, large, foreign and emerging technology jobs creation concepts and initiatives. After sixty years of growth in America, jobs creation stopped. The American economic engine lost almost a million private sector jobs in the last decade, compared to gains of 10 to 20 million new jobs in previous decades. To get our economic engine running again, America needs to create a minimum of 20 million new private sector jobs by 2020 (20 by 20). Jobenomics “20 by 20” Campaign is comprised of four business categories: Small & Self-Employed, Large, Foreign and Energy Technology Revolution. The Small & Self-Employed Business category is largest with a goal of 10 million new private sector jobs by 2020. The 20 by 20 goal for government is zero job growth. Considering state budget crises, this goal should be relatively easy, since the bulk of government jobs are in state and local governments. If the federal government imposed a no-growth policy, the total tax burden of government jobs could be reduced.

Share this:

Jobenomics Executive Summary

Jobenomics Executive Summary

Jobenomics deals with the economics of business, job, wealth and revenue creation—the substance of which powers the US economy, sustains the American way of life, and secures US national sovereignty. Jobenomics, the book, focuses on the employed and jobs creation—the segment of our society that represents America’s economic engine. Today, this engine has stalled. The decade of the 2000s lost one million American jobs, whereas the previous three decades averaged approximately 20 million new jobs per decade. If the next decade, the 2010s, generates only marginal jobs growth, the US economy could collapse under the weight of US debt and obligations. The US has several hundred trillions of dollars worth of debt, which it will not be able to pay, if its workforce does not grow. In addition to debt, government overhead continues to explode. Out of a total population of 309 million Americans, there are 178 million non-workers, 35 million government employees and contractors, and 96 million in the private sector labor force. This equates to 1 government worker for every 3 workers in the private sector. In the non-worker group, there are approximately 300 million payments of welfare, from Social Security to food stamps. The bottom line is that too few are supporting too many and carrying too large of a debt load. Consequently, the jobenomics team is launching a national 20 by 20 campaign to create 20 million new US private sector jobs by 2020. 20 by 20 includes initiatives for government, large business, small and self-employed businesses, foreign investment in US businesses, and major emerging technology initiatives. Through jobenomics, Americans will have common cause and resources to create jobs in order to build a more prosperous future.

Share this:

Jobenomics

Goal: Creating 20 Million Jobs By 2020

Monthly Archives: December 2011

Small Business: The New “Big Dog”

30-Year US Employment Trends

Economic Recovery Scenarios

35% “Functionally” Unemployed Rate

Small Business Produces 99% of Jobs

Small and Self-Employed Businesses Produced Almost 100% of Net New Jobs This Decade

Small Business Emphasis

Emphasis on Small and Self-Employed Businesses

Too Few Pay for Too Many

Too few pay for too many

Business Emphasis

Business Emphasis

The Solution

The Solution

The Problem

The Problem

Jobenomics 20 by 20 Campaign Plan

Jobenomics Executive Summary