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July 19, 2010

The Reality of the American Dream: U.S. Ranks Low in Self-Employment

America has been known as the land of opportunity for generations, but recent surveys have shown that the American Dream may be strained.  According to a recent study by the Organization for Economics Cooperation and Development (OECD), the U.S. ranks 35th out of 36 countries examined for self-employment.  You can read an article published by Mint here.
So, why is this happening?
There are competitive advantages to starting a company in the United States versus Asia and Europe.  For one, intellectual copyright and patent laws in the U.S. are favorable to business.  Secondly, the process of starting a business through the legal system is about 10 times quicker and less costly in the United States than in Europe.  So, the legal system should promote self-employment in the U.S. versus other countries.
The Mint article does give insight into what the problem may be;
“Another factor is choice. In many of the countries with high entrepreneurship rates, there are typically not enough jobs or anyone hiring. Unemployed people there typically have no choice but to start their own business.”
I find this quote interesting as some economists in the United States have pointed to the lack of jobs and the cutting of unemployment benefits to a possible rise in crime.  It is interesting that self-employment is so high in these other countries, but we don’t believe that the same factors here will lead to increased self-employment.  For more on how unemployment benefits pay people to be unemployed, check out this previous post.
I believe that the opportunities for self-employment within the United States are at a two decade high due to the following factors:
1)      The size of corporate America is at an all-time high.
Corporations are larger than ever before and as a result, competition is declining.  Most companies aren’t taking risks and therefore, opportunities are everywhere.  With corporations hoarding cash and not taking risk, they are also looking to cut costs. 
2)       Companies are looking to cut costs through increased productivity/efficiency.
Anyone who can provide products/services that increase productivity/efficiency will find the current market favorable.  This is evident in the GDP numbers which show that companies have made record investments in equipment and software technology in the last two quarters.
3)      There seems to be no “hiring surge” in the horizon.
The labor market is currently cold and while signs of thawing seem to slowly coming along, they are slower than previous recoveries.  Millions of Americans are going to be finding themselves making tough choices in the coming months.  These individuals will likely turn to their skills and try to sell them on an individual or contractor basis.
The reality is that entrepreneurship should not be as low as it is in the United States.  The long hours of work with no guaranteed pay, the soft unemployment income system, and the lack of knowledge on how to start/run a business are likely all factors in this depressing statistic.  I’m going to stick to my guns in believing that self-employment will rise in the current political/economic environment.  This rise in competition should get corporations off the sidelines and help jumpstart the economy.  It will not happen overnight, but as Americans, we should turn to “doing” as opposed to throwing money at a problem if we are going to solve this employment crisis.

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