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Economix Blog: Affordable Care Act Could Be Good for Entrepreneurship

May 31, 2013 by Leave a Comment

CATHERINE RAMPELL

CATHERINE RAMPELL

Dollars to doughnuts.

The Affordable Care Act is expected to produce a sharp increase in entrepreneurship next year, according to a new report from the Robert Wood Johnson Foundation, the Urban Institute and Georgetown University’s Health Policy Institute. The number of self-employed people is expected to rise by 1.5 million — a relative increase of more than 11 percent — as a direct result of the health care overhaul.

One major barrier to entrepreneurship in the United States — beside the usual risks involved with starting a company — is that it has been difficult to get health insurance on the individual market. Those who do end up founding or joining a start-up are often able to do so because they have a spouse with employer-sponsored insurance, or because they are keeping a day job with a bigger company. (This was the case, for example, for most of the people involved with Leap2, a Kansas City start-up that I profiled last fall.)

Economists have looked at whether this insurance-related job lock is deterring self-employment and the formation of new businesses, and the data suggest it is. A Journal of Health Economics paper, for example, found that business ownership rates jumped sharply from just under age 65 to just over age 65, when people become newly eligible for Medicare. Using Current Population Survey data, the same paper also found that wage and salary workers are more likely to start businesses from one year to the next if they have a spouse with employer-based insurance.

A working paper from the Upjohn Institute looked at a change in the law in New Jersey that expanded access to individual health insurance. It found that the law seemed to increase self-employment, particularly among “unmarried, older, and observably less-healthy individuals.”

The report released Friday applies those findings to a model of what will happen in 2014, based on the Affordable Care Act’s provisions for “universal availability of non-group coverage, the financial assistance available for it, and other related market reforms.” The authors also adjusted their numbers depending on the access that residents of various states already have to individual health insurance. (Vermont, for example, already has a statute that allows the self-employed to obtain small group coverage.) Over all, they found, the ranks of the self-employed are likely to rise 11.5 percent, from about 13.1 million to 14.6 million. A table with their state-by-state estimates is below.

By the way, the paper does not mention this, but the same forces that will make it easier for workers to become self-employed may also make it easier for workers to retire early. I have heard anecdotally about people in their late 50s or early 60s who would like to retire but can’t do so because they’re basically uninsurable (for now) on the individual market; I wonder if we’ll notice a wave of retirements in this age group come 2014.

Article source: http://economix.blogs.nytimes.com/2013/05/31/affordable-care-act-could-be-good-for-entrepreneurship/?partner=rss&emc=rss

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Economix Blog: America’s Biggest Entrepreneurs: High School Dropouts

April 19, 2013 by Leave a Comment

CATHERINE RAMPELL

CATHERINE RAMPELL

Dollars to doughnuts.

Among America’s most celebrated entrepreneurs are college dropouts like Mark Zuckerberg, Bill Gates, Steve Jobs and Michael Dell.

But as it turns out, the country’s most frequent business founders are dropouts of a different kind: They dropped out of high school.

That’s according to the latest numbers from the Kauffman Index of Entrepreneurial Activity, as prepared by Robert W. Fairlie at the University of California, Santa Cruz. Professor Fairlie looked at different demographic groups, and what share of each group started businesses in any given month (which is generally tiny, less than 1 percent for basically all major demographics). When he looked at entrepreneurship by educational attainment, he found that people who had not completed high school were most likely to start new businesses.

Courtesy of the Kauffman Foundation. Courtesy of the Kauffman Foundation.

The chart above is based on data from the Labor Department’s monthly Current Population Survey. It shows the percentage of individuals (ages 25 to 64) who do not own a business in the first survey month but then started a business in the following month, with 15 or more hours worked per week. For those who didn’t complete high school, this entrepreneurship rate was 0.52 percent, compared with 0.32 percent for people in this age range over all.

So how is it that America’s least-educated are responsible for so much business creation, especially given that we might associate business acumen with more formal training?

“These high rates for the least-educated group suggest an increased number of people entering entrepreneurship out of necessity,” writes Professor Fairlie.

People with more education have more and higher-paying job opportunities available to them at existing employers. Those rare Mark Zuckerbergs of the world are founding businesses rather than finishing their formal education by choice, not because no one else will hire them. The same probably isn’t true for workers without a high school diploma.

Starting a new business, by the way, does not necessarily mean taking on employees. The Labor Department survey upon which this analysis is based does not, unfortunately, currently include information on employer versus nonemployer businesses. A majority of businesses showing up in these figures seem to be nonemployer businesses (sole proprietorships), given that the Kauffman Index of Entrepreneurial Activity shows 514,000 new businesses being created each month in 2012, whereas other measures that count only new employer establishments, like Business Employer Dynamics numbers from the Bureau of Labor Statistics, “indicate roughly the same number of new businesses per year,” Professor Fairlie’s report says.

Some other highlights of the report, about demographics of new business owners:

  • Men are much more likely to create new businesses than women are. Other groups with high rates of entrepreneurship, as measured this way, are immigrants and Latinos.
  • The construction industry had the highest rate of entrepreneurial activity of all major industry groups.
  • Montana, Vermont and New Mexico had the highest entrepreneurship rates, whereas Minnesota, Nebraska and Michigan had the lowest.
  • Among the 15 largest metropolitan statistical areas in the United States, Miami had the highest entrepreneurial activity rate in 2012, and Detroit had the lowest.

Article source: http://economix.blogs.nytimes.com/2013/04/19/americas-biggest-entrepreneurs-high-school-dropouts/?partner=rss&emc=rss

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Lessons for Detroit in Pontiac’s Years of Emergency Oversight

March 14, 2013 by Leave a Comment

As Detroit, a major American city in financial disarray, braces for what oversight by an emergency manager appointed by the State of Michigan may soon mean, one need look no further than Pontiac, a place that has been guided by emergency managers for the past four years. Gov. Rick Snyder’s administration is expected on Thursday to announce an emergency manager for Detroit.

A variety of oversight boards and receivers have stepped in — with mixed results — when the nation’s cities have teetered on the brink of bankruptcy. In Michigan alone, 21 emergency managers have been assigned to save cities and other government entities in the last quarter century, but few places have seen change as sweeping as that in Pontiac.

Unfettered by normal checks, balances and the pressures of getting re-elected, emergency managers here have overhauled labor contracts, sold off city assets and privatized nearly every service Pontiac once provided to citizens. Its police force has been outsourced to the county. Its Fire Department belongs to a nearby township. The city’s payroll, once numbering more than 600 workers, now amounts to about 50 public employees. Even parking meters have been sold. All this, and more cuts may be coming, all on the way to balancing the books.

“It’s not really a city anymore,” said Steve Swift, a Pontiac resident. “There’s nothing left now.”

Some say Pontiac’s sprint toward solvency is attracting new businesses, improving services, saving the city. But while supporters believe emergency managers, unencumbered by political infighting, are freed to make the tough decisions that local governments cannot make on their own, critics consider the entire notion of an outside manager anti-democratic, handing all-encompassing authority over the fate of a place to someone whose sole goal is to cut costs.

If anything, Pontiac’s path — a long, swerving course, of which the final results are not yet fully known — has shown that the effectiveness of an emergency manager may hinge most of all on the individual appointed.

“An emergency manager is like a man coming into your house,” said Donald Watkins, a city councilman. “He takes your checkbook, he takes your credit cards, he lives in your house and he sleeps in your bed with your wife.” Mr. Watkins added, “He tells you it’s still your house, but he doesn’t clean up, sells off everything and then he packs his bag and leaves.”

Pontiac, just 30 minutes north of Detroit, was once a healthy blue-collar city, thriving in the glory days of the American automotive industry as home to manufacturing plants of General Motors and the name of one of its brands. People used to wait to get a seat at restaurants downtown and, for nearly three decades, football fans came from miles around to watch the Lions play in the Silverdome until the team moved into Detroit in 2002.

By then, Pontiac’s slide toward insolvency was under way, plagued by a struggling automotive industry, years of financial mismanagement and a population that has been steadily declining since it peaked at more than 85,000 in 1970. Today, fewer than 60,000 people live here.

“When you wake up in the morning, you can feel the struggle,” said Shelton Martin, a resident, noting boarded-up elementary schools and abandoned homes scattered throughout the city, where a third of residents live in poverty.

In 2009, the same year Pontiac’s jobless rate reached 30 percent, the city’s projected deficit hit $12 million and state officials stepped in, just as they have now in Detroit, and appointed the first of three emergency managers who have run this city ever since.

Instantly, there was resistance. An early deal that sold the Silverdome, once valued at $22 million, for only $583,000 helped forge a deep distrust of the outside managers. The city’s first two emergency managers each resigned after little more than a year.

Monica Davey contributed reporting from Chicago.

Article source: http://www.nytimes.com/2013/03/14/us/lessons-for-detroit-in-pontiacs-years-of-emergency-oversight.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Rash to Some, Stock Buybacks Are on the Rise

November 22, 2011 by Leave a Comment

In fact, the drug maker had so much cash left over, it decided to buy back an additional $5 billion worth of stock on top of the $4 billion already earmarked for repurchases in 2011 and beyond.

The moves, announced on the same day, might seem at odds with each other, but they represent an increasingly common pattern among American corporations, which are sitting on record amounts of cash but insist that growth opportunities are hard to find.

The result is that at a time when the nation is looking for ways to battle unemployment, big companies are creating fewer jobs, and critics say they are neglecting to lay the foundation for future growth by expanding into new businesses or building new plants.

What is more, share buybacks have not fulfilled their stated purpose of rewarding investors over the last decade, experts say. “It’s a symptom of a deeper problem, which is a lack of investment in the long term,” said William W. George, a Harvard Business School professor and former chief executive of Medtronic, a medical technology company. “If we’re not investing in research, innovation and entrepreneurship, we’re going to be a slow-growth country for a decade.”

Liberal critics insist the trend is another example of top corporate executives raking in an inordinate share of the nation’s wealth, even as their employees suffer.

“It’s an extraordinarily unimaginative way to use money,” said Robert Reich, a former secretary of labor under President Clinton who now teaches public policy at the University of California, Berkeley. After diving in the wake of the financial crisis, buybacks have made a remarkable comeback in recent years, with $445 billion authorized this year, the most since 2007, when repurchases peaked at $914 billion.

But spending on capital investments like new plants and infrastructure has stagnated more broadly in corporate America, confounding efforts by the Obama administration to spur economic growth. Capital expenditures by companies on the Standard Poor’s 500-stock index are expected to total $546 billion in 2011, down from $560 billion in 2008, according to data compiled by Thomson Reuters Eikon.

The principle behind buybacks is simple. With fewer shares in circulation, earnings per share can rise smartly even if the company’s underlying growth is lackluster. In many cases, like that of the medical device maker Zimmer Holdings, executives are able to meet goals for profit growth and earn bigger bonuses despite poor stock performance.

“It’s clear there’s a conflict of interest,” said Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “Unless earnings per share are adjusted to reflect the buyback, then to base a bonus on raw earnings per share is problematic. It doesn’t purely reflect performance.”

In addition, executives, who are often large shareholders, stand to benefit from even a small, short-term jump in stock prices.

Earlier this month, Pfizer increased its estimate for stock repurchases this year to between $7 billion and $9 billion — essentially spending in one year nearly all of the money it set aside in February for multiyear buybacks. There has been a steady drumbeat of other companies laying off workers even as they have disclosed plans to buy back more stock. On June 23, Campbell Soup said it would buy back $1 billion in stock; five days later it announced plans to eliminate 770 jobs. Hewlett-Packard announced a $10 billion stock repurchase in July, and jettisoned 500 jobs in September after it discontinued its TouchPad and smartphone product lines.

Last month, the first layoffs began at Zimmer’s plant in Statesville, N.C., which is due to shut early next year. The company made splints and tourniquets there for more than three decades. For the sewing machine operators and the rest of the 124 workers at the plant, it is bad news, but it is a different story for Zimmer’s top executives.

Powered by huge stock buybacks — the company bought $500 million worth of its own shares last year, more than twice what it spent on research and development — Zimmer posted earnings growth of 10 percent a share, even though operating income and revenue grew by less than 5 percent in 2010.

Article source: http://feeds.nytimes.com/click.phdo?i=5af7176f4ea1de851555e5f109e32738

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You’re the Boss: Tracing a Decline in New Businesses

April 1, 2011 by Leave a Comment

You’re the Boss offers an insider’s perspective on small-business ownership. It gives business owners a place where they can compare notes, ask questions, get advice, and learn from one another’s mistakes. Its contributors also interpret news events, track political and policy issues, and suggest investing tips.

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Article source: http://feeds.nytimes.com/click.phdo?i=6d4d814ebbe08f7828f014cb2971cbc7

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