America has a labor market mismatch, with workers quitting at record rates and far more open jobs than the number of unemployed people. But one reason for the job crunch likely comes down to old-fashioned entrepreneurship, a new analysis suggests.
Through September, Americans have filed a record 1.4 million applications to start new businesses, according to an analysis of Census data by the Economic Innovation Group (EIG). And most of these startups are in fields like manufacturing or retail that are likely to create jobs, versus freelancers, who typically operate independently, the think tank concludes.
The surge in new businesses is a positive sign for the economy despite contributing to an already constrained labor market, said Kenan Fikri, director of research at EIG. These entrepreneurs are targeting opportunities created by the pandemic, such as "ghost kitchens" that prepare meals for takeout or delivery only,. In doing so, however, they are adding to the shortage of available workers.
"Part of this 'Great Resignation' was also Americans deciding that they didn't want to work for anybody — they wanted to work for themselves," Fikri told CBS MoneyWatch. "That's just exacerbating the pinch that employers are feeling."
One reason to look at the rate of applications for businesses that are likely to hire employees is that they are a "strong indicator of future economic recovery," he added.
To be sure, the larger pool of new business creation — including freelancers and other sole practitioners — is even bigger. In total, Americans have filed more than 4 million applications to start new businesses in 2021 through September, compared with more than 3 million applications at the same time last year.
By comparison, in the years after the Great Recession fewer than 2 million new business applications were filed each year through September.
"One reason why the recovery from the financial crisis was so prolonged and painful was that the recovery mechanism broke down," Fikri said. "The fact that we are shaping up to have a different environment bodes well for the strength and durability of the recovery."
Quitting for lots of reasons
Almost 3% of workers handed in their resignations in August — a record high — the government reported earlier this month. The number of people quitting their jobs rose to 4.3 million, dwarfing the number of layoffs from employers, who cut 1.3 million jobs that same month.
This so-called Great Resignation, as it has come to be known, comes as the U.S. ended enhanced unemployment benefits in September, a cutoff that some economists predicted would draw people back to the labor market. But that hasn't happened yet, with 3.2 million fewer workers in the labor market today compared with February 2020, before the COVID-19 pandemic effectively shuttered the economy.
While some workers remain on the sidelines, others have retired early. Others still are finding better jobs for better pay, and some are starting their own businesses, bolstered by federal stimulus aid and unemployment benefits that may have lessened the financial risk of entrepreneurship.
"The number of active business owners in the country is already 2% higher than it was in February 2020, so that means essentially that the entrepreneurial population has more than recovered," Fikri noted.
The highest rate of new business applications by those likely to hire workers is in industries that suffered the sharpest layoffs during the pandemic: restaurants and other hospitality businesses, followed by retail and health care, EIG found.
"Recessions are always periods of massive jobs loss, and part of the process of economic healing is new businesses forming to take advantage of that slack," Fikri added.
Not all these new businesses will succeed, of course. And some new business owners may decide to return to the corporate fold once the pandemic subsides. Fikri noted: "This could be temporary: entrepreneurship as a safety net."
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