Job-creating startups hit record low

Laid-off job seekers who started new businesses hit a record low in the first half of 2010, reports Challenger, Gray & Christmas, an outplacement and executive coaching firm, that has been tracking the data for a decade.

Click on chart above for a larger view.

Just 3.7% of out-of-work managers said they are starting their own businesses rather than look for a job. That compares with 7.6% in the same period a year ago and 9.6% in the second half of 2009. The previous low was 4.4% in the second half of 2008 when the credit crunch led to the financial crisis.

Click here to read more about the Challenger Gray survey.

This report comes on the heels of a study by the Kauffman Foundation that found that net U.S. job growth comes only through startups. Kauffman, which promotes entrepreneurship, looked at business dynamics statistics for 1977 to 2005 from the U.S. Census. (Click on chart for a larger view):

Source: Kauffman Foundation

In most years, companies less than a year old created an average of 3 million jobs while companies older than that eliminated a combined 1 million jobs a year. Startups continued to create jobs even in recessions, but existing businesses eliminated them, the Kauffman study found.

Click here to read more about Kauffman’s study.

The two reports combined help explain why job creation this year has been slow.

“It is difficult to pinpoint the exact reason behind the decline in start-up activity among former managers and executives,” said John A. Challenger, CEO of Challenger, Gray & Christmas. “On one hand, it could be that the job market has improved to the point that many do not feel compelled to take a risk of going it alone. Then there is the fragility of the recovery and the uncertainty that comes with it. Many small-business owners are increasingly pessimistic about business conditions and still find it difficult to get a loan.”

Lending to small businesses was $670 billion in the first quarter of 2010, compared to $710 billion in the second quarter of 2008 prior to the credit crisis, reports the New York Times.

“Those who might have considered starting a business are looking at these statistics and deciding to seek traditional job opportunities,” Challenger said.