Wednesday, August 5, 2009

Small Business Employment

A new paper from CEPR (An International Comparison of Small Business Employment) is getting lots of attention. The basic thrust is that in the U.S. few people are self-employed because of the lack of free healthcare:
One plausible explanation for the consistently higher shares of self-employment and small-business employment in the rest of the world’s rich economies is that all have some form of universal access to health care. The high cost to self-employed workers and small businesses of the private, employer-based health-care system in place in the United States may act as a significant deterrent tosmall start-up companies, an experience not shared by entrepreneurs in countries with universal access to health care.
Via Paul Krugman, who adds a couple of quick points. Jeff Cornwall weighs in with two posts [1, 2]. Cornwall offers some pretty good advice for would-be entrepreneurs:
First, when I advise entrepreneurs I tell them that they need to build a business that takes care of their needs. This includes income needs, wealth needs and lifestyle needs. Income needs includes the cost of your total lifestyle. If your business model is unable to give you adequate income to cover your expenses -- including healthcare -- then the model is not right for you to pursue. And for goodness sake make sure you can cover these expenses until your business is profitable through other income and personal savings.
Finally, on the question of health care and job lock, see this good post by Tim Kane. Kauffman/Rand have done some interesting research into this area, and there are a few good academic papers, but I read the findings as mostly mixed. It's probably worth a seperate post so I'll write that up.

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