Editorial Board

Self-Employment Should Play a Bigger Role in Jobs Programs: View

Cammie Allie and Ann Costlow are small-scale entrepreneurs who aren’t trying to start the next Microsoft. Yet both have battled back from unemployment to create successful businesses, with the sort of government support that could help thousands of other jobless people, too.

Allie manages apartment buildings in Portland, Oregon; Costlow owns four creperies in Maryland. To get started, each drew on business coaching and income support from an unusual state-funded jobless initiative. These self-employment assistance programs provide 26 weeks of income support, typically about $10,000. Participants try to start enterprises, rather than being required to look full time for traditional jobs.

Founding a business isn’t for everyone. Hours are long, initial earnings puny, and the failure rate high even in boom times. A weak economy makes everything harder.

For some displaced workers, however, self-employment may be their best hope. Entrepreneurial aid to the jobless is typically aimed at older, educated workers who lost good jobs in battered industries. With the national unemployment rate above 9 percent, such candidates face slim odds of finding appropriate work through a standard job hunt.

In Oregon, people opting for self-employment get business pointers as well as detailed reviews of their startup plans. Examiners look for clear ideas about pricing, supplies, customers and competition. Only candidates judged to have at least a moderate chance of success can proceed.

Oregon’s Successes

Oregon recently surveyed 369 people who have participated in its program since 2000. Seventy percent had started a business; nearly half of those were hiring workers. The small survey’s responses might be skewed toward recipients who thrived. Even so, Oregon’s successful entrepreneurs each created an average of 2.63 additional jobs.

In New Jersey, about 600 jobless people a year try self-employment. Data on success rates is fragmentary, but state officials say participants have started businesses in at least 33 fields, including computer services and catering. When such ventures thrive, founders don’t just earn income -- they keep hiring, becoming job multipliers.

Self-employment aid closely matches the cost of regular unemployment benefits, which can run $400 a person per week. Britain, France and Sweden have operated similar entrepreneurial assistance programs since the 1980s, with good results. In the U.S., though, only about a dozen states have followed suit, and most programs are tiny.

Bureaucracy is partly to blame. Current state and federal rules don’t allow unemployed workers to pursue self-employment aid right away; instead they must qualify for regular jobless benefits first, which takes weeks. States also worry that some startup dreams might fizzle quickly, wasting taxpayer money.

Living With Risks

Making the entrepreneur’s path risk-free is impossible. Still, that shouldn’t stymie such aid. Three of the biggest states -- California, Texas and Florida -- are home to 30 percent of America’s unemployed. These states don’t currently offer entrepreneurial assistance to the jobless; setting up such programs would be a big help.

Two other changes could help make entrepreneurship a likelier path back to work. First, states should tell the newly jobless about the self-employment option right away, rather than making them wait a month or two before becoming eligible. And second, minor income from a side business -- capped at a reasonable level of, say, $750 a month -- shouldn’t be automatically counted against jobless benefits. In some cases this year’s hobby can be built into next year’s business.

When 4.7 people are out of work for every job opening, unemployed Americans deserve better odds of becoming their own bosses.

    To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net .

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