Creating Wealth Has Never Been So Easy. Or Difficult.
By Alex Biles, University of Michigan
“Oh, get a job? Just get a job? Why don’t I strap on my job helmet, and squeeze down into a job cannon and fire off into job land, where jobs grow on jobbies!” — Charlie Kelly
Welcome to post-college, the land of diminished expectations. Who knew that upon receiving your diploma, you would be trading in your dignity for enough time to throw regular funerals for your social life (nobody shows up). It’s a precarious place where frustration is bountiful, and income, scarce. If you’re like many recent college graduates, you’re far from a career track, likely attempting to make ends meet through part-time or temporary work — hardly enough to survive on your own, let alone in a large city. As Time reported earlier this year, a study conducted by consulting firm Twentysomething, Inc. found that 85 percent of college graduates will move back in with their parents. The level of unemployment for recent college graduates in 2011: above 50 percent.
There’s surely a connection between this lack of opportunities for the under-25 crowd and the currently anemic job market, but more broadly, this is a reflection of the job market itself. The job market of today is far removed from that of our parents’ when they were our age. And the difference starts from where jobs come from.
Startups today are increasingly, if not, overwhelmingly tech-based, and unlike their counterparts of yesteryear, derive most of their content creation and value from outside the firm via crowdsourcing. Due to their decentralized structure and plummeting overhead costs courtesy of the Internet, few new firms see the necessity of hiring thousands of workers.
Research from the Kauffman Foundation found that startups throughout the 1990s launched with an average of 7.5 jobs, compared to 4.9 jobs in 2009. The study’s co-author, E.J. Reedy, adds, “Not only are these businesses starting out smaller than their predecessors, they are staying smaller. Cohorts of businesses rarely add jobs in the aggregate as they age. A cohort’s initial level of employment is likely the maximum number of jobs it will provide over its lifetime. Thus, falling contributions of jobs at new businesses will be felt in the U.S. economy for years.”
Take Facebook and Twitter, for instance. Founded in the 2000s, they have become two of the most popular web services on the globe, with hundreds of millions of active users. Yet here’s the kicker: the companies employ 2000 and 600 people, respectively. And this trend hardly seems to be a fad. For aspiring entrepreneurs, providing goods and services online is the way to go. The barriers to entry in the brick-and-mortar arena of the service sector are simply too high, whether it’s finance or retail.
These barriers to entry and enhanced capabilities for overcoming them on the Internet have had a substantial effect on fueling the current startup wave, captured so elegantly by 2010’s The Social Network. I mean, fuck it. If I can’t find a fulfilling job, why don’t I create my own?
Personally, I love the idea of my peers launching startups at increasing rates. Entrepreneurs solve problems and their combination of ruthless dedication, coupled with risk tasking, ultimately provide unparalleled opportunities for enhancing our collective standard of living.
Problem solving and modern-day conveniences are some of the perks of entrepreneurial risk taking, and with the Internet’s lowered barriers to entry, the incentives for entering the market are all there. On the other hand, an increase in risk taking will likely end in more failures.
This creates the specter of a startup bubble, a possibility that fellow New Student Union co-founder Alex Schiff has commented on, and one that I won’t take the liberty of expanding on here. However, the reduced operation costs for online startups only serve to boost the allure of starting an Internet-based business, even if the viability of that business is lower than a comparable brick-and-mortar firm. There’s simply much less to lose. And the cleanup is much easier, too. When K-Mart goes out of business, communities witness blight in the form of white elephants lining their avenues. When genericstartup.com goes out of business, it’s mostly server space that has to be cleared.
That said, the changing nature of the firm has not manifested itself in the form of significant productivity gains. In fact, non-farm productivity in the U.S. is declining. This startup wave, unlike industrial revolutions past, does not appear to be transforming our economy for the better in terms of employment numbers. When we think of the greatest innovations of the 2000s, tech-based contraptions like Facebook, Google, smartphones, the iPod and the Amazon Kindle come to mind. Yet, none of these new school specimens has created many jobs. George Mason University economist Tyler Cowen explains, “The decade in which we have had the Internet, macroeconomically, has been our most miserable decade since the 1930s.” In spite of our apparent affluence derived from the seemingly never-ending assembly line of high-tech gadgets, we have hit a major bump in the road (of course there are numerous external factors that this piece is not addressing).
What this creates is an interesting duality. With reduced barriers to entry, lowered overhead costs, diminished risk and inexpensive imported computers, the ideal of the American entrepreneur has never been more accessible to the masses. And yet, the rising tide of changes that granted us these opportunities has not lifted the boats for all. Never has it been so easy — or difficult — to create wealth. In the meantime, where are all the job cannon entrepreneurs?