Archive for March, 2010

CREATIVE CLASS COCOONING – THE RETURN OF THE MULTI-GENERATIONAL HOUSEHOLD OR WATCH OUT FOR THE BOOMERANG!

March 27, 2010

Is the creative class returning to the nest? 

Will ‘boomerangs” redistribute the young-well educated workforce needed to propel geographic specific job growth?

Pew Research Center’s analysis of U.S. Census data indicates that of the 49 million Americans now living in a multi-generational family household, 47% live in a household made up of two adult generations of the same family – that’s 23 million “boomerangs”.   

   (click for full report    PEW-multi-generational-families)

Today 1 in 5 adults aged 25 to 34 now live in a multi-generational household according to the Pew research. That’s a 2.6 million increase from 2007 to 2008 being an increase to 20% from only 11% in 1980.

Times are changing according to the Pew research.  Today there “are more unmarried 20-somethings in the population, many of whom consider their childhood home to be an attractive living situation, especially when a bad economy makes it difficult for them to find jobs or launch careers”

The economy plays a big factor in this change.

According to Pew analysis of Bureau of Labor Statistics data, as of 2009 some 37% of 22- to-29-year-olds were either unemployed or out of the workforce, the highest share among this age group in nearly four decades. In addition, a 2009 Pew survey found that among 22- to 29-years-olds, one-in eight say that, because of the recession, they have boomeranged back to live with their parents after living on their own.

So what does this mean to the community planner and economic developer?

Ten thoughts on the post recession propensity to migrate for job opportunities or a “fun place to live”:

1.        Unemployment and lack of locally available jobs will place greater emphasis on the choice of the location to reside by the young-well educated creative class.

 2.         Implementation of economic development strategies to gather employment “skill-sets” of the young-well educated and mobile population will be more difficult.

 3.         Communities who have focused there future growth strategy on in-migration of the young-well educated creative class, will need to rethink the effectiveness of this strategy, at least in the short term.

 4.         When population migration patterns of the past economic “good times” return offering job opportunities to the young-well educated creative class, the memory of unemployment and difficulty in securing employment will linger; resulting in hesitancy before making a decision to relocate in pursuit of job opportunities.

 5.         A single source need (one employer) for certain ‘skill sets” within a community will be less desirable to the young-well educated creative class compared to communities having “crosswalking” opportunities; being the ability to transfer individual “skill sets” among several employers.

 6.         Community population growth will, in part, be driven by “crosswalking” opportunities – a large number of local employers seeking my “skill set” will be seen as a better place to reside, by the young-well educated creative class.

 7.         “Skill-set” attraction strategies will enter into the daily lexicon of economic development attraction strategies sponsored by local communities, to expand existing business employment but also to attract complementary “cluster” related businesses.

 8.         “Quality of Life & Placed-Based” population recruitment will take a “back seat” for a while to job offerings and long-term locally-based career opportunities, as attractors to the young-well educated creative class.

 9.         Communities demonstrating entrepreneurialism, the formation of small young businesses, will have a greater appeal to attract the young well-educated creative class, since it evidences a young prosperous community. 

 10.       The role of educational institutions in the community, including academic pursuits, fostering community leadership, formation of community social capital and sponsorship of social and cultural pursuits, will differentiate comparative community prosperity.

For community planners and economic developers there is one certainty.  The economic recession is changing the way people view migration for employment and changing household living patterns.

What happens in the future undoubtedly will be different from what we have experienced in the past. 

These ten thoughts will stimulate discussion and rethinking of community based economic development strategy.

Author note:  This was prepared by Charles Eckenstahler for presentation at the Purdue North Central “Topics in Regional Economic Development”   classs, Spring 2010. 

 

ECONOMIC DEVELOPER’S LAMENT – THE NO MONEY PARADOX OR LOOK”N FOR LOVE IN ALL THE WRONG PLACES (Thanks – Waylon Jennings)

March 23, 2010
 
We bailed out Wall Street but there’s no money on Main Street!

Speak to any economic developer and they will regale you with not so amusing stories of small businesses being denied credit, credit needed to grow small businesses and create jobs.

Credit lines that once provided operating capital are being called and cancelled. Lenders, even with a government 90% guarantees backing are unwilling to extend credit.  Refinancing when required is often at higher interest rates and shorter terms squeezing more cash flow away from business operations that create jobs. 

Stories abound, like the one printed in the current issues of Entrepreneur Magazine and recent headlines in the Wall Street Journal.

“SBA currently has a loan programs in place that work with banks, guaranteeing as much as 90% of a lenders’ small-business loan against default.  In 2009, these guaranteed loans were down 37% compared with two years earlier.” A Plea for Direct Lending to Companies – Proposed Legislation Calls for the Small Business Administration to Take On an Added Role – Lender of Last Resort” (March 4)

“Last year 125 venture funds collected $13.6 billion, down from 203 funds that raised $28.7 billion in 2008”, and

“There were 794 active venture-capital firms last year, down from 885 in 2008 and a peak of 1,023 in 2005.” Venture Capital Firms Caught in Shakeout. (March 8) 

“Consumer lending fell by 3.8%, as roughly 7,200 banks and credit unions pulled back on mortgages, credit cards and other loans.”  Where to Find the Money Despite a Contraction in Consumer Loan, Some Banks Are Rolling Out the Dough. (March 13-14)

“In 2009 total lending by U.S. banks fell 7.4% the steepest drop since 1942” – Lending Squeeze Thwarts Revival of Small Businesses (March 15) 

“Fed up with tight supply of credit, states and local governments across the U.S. are starting to punish big banks” Cities, States Tell Banks They’ll Go Elsewhere (March 17)

If there’s no money on Main Street how do small businesses fund job creation?

This is a perplexing question, especially with substantial research documenting that small young businesses create post recession jobs.

Should government step-in and become a direct lender to small business?

They did so for the “too big to fail” businesses, ones that certainly will not contribute to job creation, if post recession history repeats.

Should TARP funds be used for SBA Direct lending as suggested by Rep. Nydia Velazquez (D., N.Y.) chair of the House Committee on Small Business?

However if credit is frozen to the small businesses we rely upon for job creation, then government action is required.

An argument can be made that small business job creation is “to big to fail – being the economic engine that puts folks back to work as the economy exits recession”.

Let’s not leave small young businesses, as Waylon might say –

“looking for love in all the wrong places
Looking for love in too many faces
Searching your eyes, looking for traces
Of what.. I’m dreaming of…”

Action is required, sooner rather than later.

STATES AND LOCAL GOVERNMENTS CONSIDER BUSINESS TAX REDUCTIONS TO SPUR ECONOMIC DEVELOPMENT

March 12, 2010

Wall Street Journal profiles Los Angeles, Minnesota, and Michigan efforts to lower business taxes in an effort to retain and grow jobs – Implementing the famous Laffer curve.

Arthur Laffer is most famous for originating the Laffer curve, an economic theory that states that higher taxes remove funds and motivation for the use of these precious resources in creating jobs and ultimately personal wealth.  The infamous (1972) “Back of the Napkin Laffer Curve” seeks to identify the point on a scale of tax rate vs. business revenue where it is no longer desirable for business to spend time and money in pursuit of additional revenue growth.

The economic literature is filled with commentary on this theory. Laffer a prolific author, has several books discussing his theory and its implications upon the national economy.  More importantly, he authors an annual comparative study of state economic competitiveness published for the National Legislative Exchange Council titled Rich States – Poor States.

http://www.alec.org/am/pdf/tax/09RSPS/26969_REPORT_full.pdf

Image

In Rich States – Poor States ‘09 Laffer and co-author Stephen Moore give a convincing argument that taxes do influence the location and growth of business.

It’s not surprising that high tax states are concerned about the impact of business taxes.

While there is strong evidence that Laffer’s theory is correct and business taxes do play an important role in economic development, the political economic development policy debate about balancing the need for tax revenue with the source of this revenue, many times clouds ability to implement a clear and sustainable business tax policy. 

This ambiguity leads to state-to-state and community-to-community tax inequities. 

It seems logical and prudent business strategy to take advantage of these inequities when they contribute to business revenue and profits.

Further, its logical that states having inequities would seek changes to produce parity with states that have a business tax competitive advantage.

For economic development practitioners whose success, in part, is directly attributable to economic competitiveness, understanding the impact of business tax inequities and means to remedy these inequities clearly is necessary to increase competitive advantage and success in creating jobs and economic wealth for the communities they serve.

 Author note:  This was prepared by Charles Eckenstahler for presentation at the Purdue North Central “Topics in Regional Economic Development”   class, Spring 2010.

AN ARGUMENT ON BEHALF OF INCENTIVES FOR LOW WAGE JOBS

March 9, 2010

Economic developers are faced today with growing controversy over issuance of tax and other financial incentives that bring new jobs into their community. Incentives are more “hotly contested” when the wages of the job are viewed as a meager living wage. 

In theory, minimum wage “hurdles” to obtain government  incentives is good, in that it encourages creation of desired “higher wage” employment in the community.

However, there is growing evidence that minimum wage criteria may in fact have unintended consequences – specifically eliminating jobs traditionally offered to less educated and skilled workers ultimately denying them an opportunity to gain experience and earn job skills for higher wage employment.

The greatest impact of a minimum wage hurdle affects entry-level jobs, typically filled by the young and jobless.

Profiled in the Review & Outlook published in the Wall Street Journal (March 5, 2010), teen unemployment has increased each time the minimum wage has risen. This data provides strong evidence that raising the minimum wage eliminates the propensity for private businesses to create entry-level employment opportunities. 

It is a simple economic principle – business employs labor only when labor  contributes to business profits. This principal can easily be demonstrated by business use of modern technology to replace certain human skills.

Economic developers represent many geographies some with severe youth unemployment.

A question to ponder is whether it is politically correct to offer an incentive to a business that will create entry level jobs that can be filled by the young and maybe the jobless.

While these jobs may not provide a desired living wage, such jobs offer an opportunity to gain “employment credentials” that can be used to advance within the work force.

The debate of whether it is good government policy to offer incentives for low skill/low pay jobs will continue. However, the notion that higher wages for low skill jobs destroys the number of jobs offering entry-level employment opportunities is real.

FOSTERING ENTREPRENEURIALISM: THOUGHTS ON SUPPORTIVE ECONOMIC DEVELOPMENT ACTIONS

March 8, 2010

Every community wants new businesses.  Not only do new businesses create jobs but they give a public demonstration of a growing prosperous community. 

Academic research provides strong evidence that small young businesses lead job creation when exiting a recession.  Local economic developers have taken note and many incorporate specific work tasks designed to assist new business formation as an element in the overall community economic development strategy.

However, community economic development work tasks that make a significant contribution to the formation of new businesses are a little more difficult to identify.

Here are ten thoughts to consider when forming your community based new business economic development strategy:

1.  Recognize Individualism

The decision to start a business is a personal decision.  Whether the decision is made by an employee that says “I can do this better” and wants to create the next “Apple Computer” or the laid-off manger that begins offering consulting services, the final decision to go into business is an individual decision.

It’s easy to understand that a decision of this type will be stressful, effecting personal income and the family lifestyle.

 Work program suggestion –

Provide access to personality assessment services that determine ability to accept risk and manage risk.

2. Help Surmount the Hurdles

Forming a business is much more than making a product or offering a service and collecting money. It gets complicated with complex things as 1) what form of legal entity do I need, 2) what are my federal, state and county business identification obligations, 3) how to I complete my accounting to comply with tax obligations, 4) what licenses and permits are required, 5) what insurances coverage is needed, among other things.

Each poses a hurdle challenging the entrepreneur.

 Work program suggestion –

Sponsor how to go into business for yourself programs, offered by local SBA sponsored Small Business Development Centers. Often local colleges and universities are available to assist with these challenges.

3. Make Entrepreneurialism Part of Junior and High School Education

Is entrepreneurialism a learned desire?  Some academics believe so.  Under this assumption, the role of entrepreneurialism as taught in the classroom is important to the early introduction that “going into business for your self” can be done and can have great personal and financial reward.

Work program suggestion –

Sponsor Junior Achievement and similar programs available in all schools.

4. Host Entrepreneurial Cafes

There is strong evidence that certain entrepreneurial camaraderie exists, especially among today’s “younger generation” computer based entrepreneurs.  The older form of dedicated office space to many entrepreneurs is a “thing of the past” and the new office can be any place having internet connectivity.

An entrepreneurial café, being a place where resources can be found and where entrepreneurs congregate can provide the necessary networking and social support structure sought after by those considering entrepreneurship.

Work program suggestion –

Create a café and virtual office providing a physical location for business and social needs of emerging entrepreneurs.

5. “Carve-Out” opportunities within the economic landscape.

There are many magazines touting the next great business opportunity.  However little research is completed on a communitywide scale to identify what businesses opportunities are likely destined for success based on the current and future projected economy.

Most times identification of the business opportunity is left to the entrepreneur and made by “gut instinct” with out a formal examination or market study.

 Work program suggestion –

Create, typically a university sponsored, entrepreneurial investigation research team to    identify local community needs and opportunities that can be served by new businesses.

6. Raise Capital Create a “Shark Tank”

One reason given for new businesses failure is the lack of capital. This is especially true today where commercial lenders and the US Small Business Administration have reduced lending to small businesses.  Today, it’s a rare exception to find a lender interested in financing a new business “start-up”.

The need for entrepreneurial financing has been popularized on television by “Shark Tank” a program where entrepreneurs “pitch” there new business idea to potential investors, in an effort to seek needed capital for business start-up and expansion.

Work program suggestion –

Community economic development strategies may require assembling social venture capitalists a new breed of investor typically organized in the form of an LC(3) – Low-profit Limited Liability Company to provide new business start-up financing.

7. Play the Numbers

Academic research documents nationally that 32 of 100,000 people will start-up a business, each month. Indiana, while being slightly lower at ratio of 28 per 100,000 people, still demonstrates a strong propensity for new business formation.

But a strong propensity does not automatically result in a new business contributing jobs to the local economy; that being the goal of a community based economic development program. An economic development program that “mines the data” focusing on the population groups that have propensities to form new businesses is called for to help create these new businesses.

 Work program suggestion

Programs that create interest aimed at certain population groups, such as males of a certain age which have higher propensity to form new businesses should be part of the community economic development program.

8. Support Population Diversity

Entrepreneurial population studies document that certain demographic sectors have a greater propensity to from new businesses, especially Hispanics and recent immigrants. 

 Work program suggestion –

Support program that celebrate population diversity embracing population groups that have a higher propensity to form new businesses.

9.  Create a “Match-Up” Market Place

Forming a business take different “skill sets” and talents, often needed to be assembled by the entrepreneur.   

 Work program suggestion –

Create a “wants and needs” bulletin board to match entrepreneur business needs with available support capacities.

10. Celebrate Success – Achieving Entrepreneurial Notoriety

Nothing breeds success more than success.  Being noted in state and national media as a community hosting new business formation not only demonstrates success but encourages others to consider “going into business themselves” or to take permanent residency in a location where new business formation is thriving.

 Work program suggestion –

Create a media program announcing new business formations on a regular basis to create a statewide and national recognition as a geographic location for “new business start-up”.

 

Author note:  This was prepared by Charles Eckenstahler for presentation at the Purdue North Central “Topics in Regional Economic Development”  class, Spring 2010.

NEW BUSINESSES TO AID LAPORTE COUNTY IN THE ECONOMIC RECOVERY

March 1, 2010

LaPorte County doubles the number of new businesses seeking assumed names in 2009.

Academic research documents the contribution of small and young businesses to economic recovery.   With this knowledge government leaders and economic developers are well served to provide programs aiding new business formation.

Future small business formation will be accomplished by a small subset of the population.  Economic Development strategy targeting this subset increases the likelihood and success of new business formation and creation of jobs and additional investment in the LaPorte economy.

In 1979 a David L. Birch, doing government sponsored research, identified that small business created 2/3’s of all new jobs.  This discovery set in place a transformation of local community sponsored economic development strategies.

No longer were economic development strategies to be solely dedicated to the recruitment of the next business willing to locate but economic development programs should also consider helping small businesses expand; hopefully creating new jobs quicker and in greater quantity.

Since this revelation, small business creation and expansion has become a staple of local economic development programs.

Adding fuel to this message has continued over the past 30-years.

The US Small Business Administration adds that in the decade of 1980-90- 56% of the new jobs that were created came from businesses having less than 20 employees.   It’s the same for the next half decade “1990-95” where these small businesses created 49% of the new jobs.

Most notable is research completed by the National Federation of Independent Businesses showing that these new jobs came in the beginning of an economic recovery.

The evidence that new small businesses create the majority of new jobs continues. 

Research by the Kauffman Foundation documented that in 2006-07 over 2/3’s of the new jobs created occurred in businesses less than 5-years old.  The research also disclosed that over 50% of these jobs originated from firms with less than 50 employees.

A logical question to be asked is who will start these new businesses?

Again research by the Kauffman Foundation gives an indication.

Their researches studying entrepreneurial activity between 1996 and 2008 concluded that nationally 32 of every 100,000 people will start a new business.

In Indiana the researchers say 28 out of every 100,000 people will start a new business.

Other national findings show:

  1. Construction or other service business was most likely new business formed.
  2. A new business owner was most likely a Latino or Asian-American.
  3. New business owners likely had less than or a high-school education.
  4. New immigrants have a higher tendency to start a new business.
  5. New business owners were most likely to be male aged between 55-64 years.

To measure how well LaPorte County complies with this national standard, data from the US Department of Commerce and County Recorders office was studied. 

US Department of Commerce County Business Pattern data reveals for Indiana businesses filing business income taxes, that in the period of 1998 to 2007 the number of business with less than 50 employees grew by 6,167 firms; 4.5%.

In LaPorte County during this same period the number decreased by 29 firms (a 1.1% decrease) and the number increased in our neighboring county Porter by 394 firms: 12.7%.

For business that report business income on their personal income taxes we studied the growth of businesses filing an Assumed Name Registration with the LaPorte County Recorder. 

   
Laporte County
Assumed Business Name Certificates
   
Year Number of New Certificates Issued
   
2010 to date 47
2009 441
2008 160
2007 185
2006 173
2005 194
2004 204
2003 176

We found that between the seven-year period between 2003 and 2009 an average annual enrollment of new businesses of 209, ranging from low of 160 to a high of 204, with the highest enrollment being 441 in 2009.  It is interesting to note that registrations actually doubled in the height of the current economic recession.

What’s this all mean?

Quite simply, new small businesses will contribute to job recovery in LaPorte County.  These will likely be started by a small subset of the population.

We believe the LaPorte County entrepreneurial profile will focus on Latinos, new immigrants, Asian-Americans and while males aged between 55-64 years.

Author note:  This was prepared by Charles Eckenstahler for presentation at the the Purdue North Central “Topics in Regional Economic Development”   classs, Spring 2010.