News on Career Choices: Record Low Number of Laid-Off Workers Opening New Businesses

During recessions, more laid-off workers tend to make the career choice of starting their own business.  This has been confirmed by data collected by Challenger, Gray and Christmas, a global outplacement consulting firm.  Starting in 1986, they created the Challenger Job Market Index, which quarterly surveys around 3,000 US-based job seekers, many of whom were former managers and executives from various industries.  The data collected over time shows that between 1986 and 1991, about 15% to 20% of laid-off workers were making the career choice to open their own business.  During the 90s, this proportion progressively decreased to about 7% in 1997.  From 1998 until 2009, the proportion hovered between 5% to 10%.  Surprisingly, it further dropped to the lowest level observed on record, with only 3.7% of laid-off workers starting their own business in the first half of 2010.

Why are there fewer laid-off workers that make the career choice to start their own business?  Various hypotheses have been proposed:

  • Challenges in Accessing Capital - John A. Challenger, the CEO of Challenger, Gray and Christmas commented that the lower proportion of laid-off workers making the career choice to open their own business might be partly due to "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”.  Access to patient capital also remains elusive for mission-driven organizations.
  • Concerns about Health Care Costs and Benefits - Being one's own boss means being responsible for covering one's own health care costs (and that of other employees).  Being one's own boss also means entirely contributing to one's retirement fund, setting up policies for time off, and any other benefits one wants to offer.
  • Fear of Long Hours - We all heard the stories of successful entrepreneurs who spent a number of years building their company with little money and with no time off to speak of (e.g. Bill Gates, Sir Richard Branson).  Fewer laid-off workers might be willing to make the career choice of putting in a significant amount of hours and efforts into a venture that might not be able to become financially sustainable over time.
  • Increased Number of Job Opportunities - The job market might have been improving enough for many potential entrepreneurs to not feel compelled to take the risk of opening their own business.
  • We just went through the longest recession since World War II (according to the National Bureau of Economic Research - NBEC, the latest recession lasted 18-month, from December 2007 until June 2009).  The NBEC research also indicates that the  jobless recovery that we have been experiencing is likely to perdure.  The NBEC report issued today indicated that the pre-recession unemployment levels might not be observed until at least 2013.  The impact of this long recession on the morale of budding entrepreneurs will remain difficult to assess.

Which combination of these factors (in addition to other factors) contributed to the record low number of laid-off workers making the career choice of opening their own business remains unclear.  As mentioned in Ritika's earlier post in this section, it takes a specific kind of personality and skill mix to become a successful entrepreneur.

What other factors or reasons do you believe might have been contributing to this number?

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