Entrepreneurship and Job Growth

This analysis attempts to place existing research about job growth among young, small firms in the context of productivity dynamics. Most research to date has relied on U.S. manufacturing data; this study, however, takes advantage of tabulations from recent, economy-wide datasets.

These datasets use the Longitudinal Business Database (LBD) and the Integrated LBD, which is an extended version of the LBD. Both datasets incorporate the role of non-employer businesses (i.e. businesses that do not yet employ workers) into the job growth dynamics of U.S. businesses.
A review and analysis of the job growth literature from a productivity dynamics perspective reveals that young businesses have much higher net growth and much higher volatility than mature firms. The data also indicate that publicly traded firms exhibit higher net growth and less volatility than privately held businesses and that there has been a decline in overall firm volatility in the U.S. over the last couple of decades.



Finally, a significant fraction of young employer firms have a pre-history as non-employer firms. As a whole, the findings suggest that U.S. business dynamics are characterized by constant change and that young firms exhibit rapid net growth and high volatility.

Download the working paper by John Haltiwanger here.

Why Do Most Firms Die Young?

Here is an abstract of an interestinmg article on the topic...

A theoretical model of firm growth under uncertainty is developed in order to account for the high failure rate of young firms. This model pulls together several strands of the existing literature, including: the portfolio approach to balancing risk and return; a variation on Gibrant's law as a description of the growth process, and human capital as a determinant of entrepreneurial productivity.

Consistent with the observed firm failure distribution, the model suggests that the failure rate first rises steeply and then tails off to a low, long run value. Simply put, the model points to an early death for most firms. One explanation for the initial rise in the failure rate is the depletion of initial financial resources as a result of trading losses and bad luck. The model emphasizes the importance of risk in firm failure. However, closure under risk is modeled as a rational decision by the entrepreneur.

Source:

Cressy, Robert
Why do most firms die young?
Small Business Economics. 2006.
v. 26, no. 2, p. 103-116.

Boomers Retiring Less Wealthy

Indeed, the 78 million Americans born between 1946 and 1964 are on track to replace about 60 percent of their annual incomes after retirement, according to the Fidelity Retirement Index. The national survey by Boston-based mutual fund giant Fidelity Investments also found that boomers set aside an average 4 percent of annual income. So much for maintaining their current standards of living.

Despite the size of their bank accounts, however, many boomers (the oldest of whom turn 60 this year) are unwilling to put retirement plans on hold. With less money to live on and life expectancies on the rise, seniors who failed to feather their nest eggs may have to get creative to make ends meet, says Brent Neiser, a certified financial planner.

Retiring with a small nest egg?
• Go to plan B
• Boost your budget
• Put your house to work
• Maximize investments

Read the full story here.

On Boeing...

The Boeing Company operates as an aerospace company. It operates through six segments: Commercial Airplanes, Aircraft and Weapon Systems, Network Systems, Support Systems, Launch and Orbital Systems, and Boeing Capital Corporation.

The Commercial Airplanes segment produces commercial aircraft and a family of commercial jetliners for passenger and cargo requirements of domestic and foreign airlines. It also offers aviation support, aircraft modifications, spares, training, maintenance documents, and technical advice to commercial customers.

The Aircraft and Weapon Systems segment involves in the research, development, production, and modification of precision engagement, and mobility products and services. The Network Systems segment engages in the research, development, production, and modification of products and services to assist its customers in transforming their operations to be network-centric, as well as to develop missile defense systems.

The Support Systems involves in the operations, maintenance, training, upgrades, and logistics support functions for military platforms and operations. The Launch and Orbital Systems segment provides launch exploration, and satellite products and services. Its programs include space shuttle, international space station, crew exploration vehicle, Delta II and Delta IV launch vehicles, and sea launch joint venture, as well as commercial satellite solutions.

The Boeing Capital Corporation segment provides financing solutions for the space and defense markets. Its portfolio consists of finance leases, notes and other receivables, equipment under operating leases, investments, and assets held for sale or release.

The company also offers two-way data communications service for global travelers; and Boeing Technology, an advanced research and development organization. It has a partnership with Lockheed Martin Corporation.

The Boeing Company was incorporated in 1916 and is headquartered in Chicago, Illinois.

Outsourcing to Grow in Eastern Europe

Eastern Europe could soon become a favourite location for offshore outsourcing, with activity in the region estimated to triple between 2005 and 2008.

That's according to McKinsey and Co, which predicts the business process outsourcing (BPO) industry will support 130,000 jobs in the region by 2008.

Although only one per cent of the world's total BPO spend - worth $30bn - is currently located in Eastern Europe, the region emerged as one of the favourite locations for Western European companies to invest in between 2004 and 2006. McKinsey identifies three main advantages for companies locating BPO operations in Eastern Europe in the winter issue of McKinsey on IT.

The region offers low wage levels, comparable to India, with slow wage inflation looking likely to keep the region economically competitive for at least 15 years.

Also, compared to competing regions around the world, Eastern Europe is a relatively low-risk location for investment due to the reliable infrastructure already in place.

The other benefit is the region's geographical and cultural proximity to Western Europe, making the process of setting up offices much easier. There are also fewer language barriers compared to elsewhere, with German and French both being widely spoken.

Countries such as India, Ireland, Malaysia and the Philippines have until recently been the favoured locations for offshore BPO investment.

Read more here.

Seminoles Bid for Hard Rock

With its $965 million deal to acquire the Hard Rock Café restaurant and casino chain from the British company Rank Group, the Seminole tribe is on the vanguard of what could be a rash of new investment from cash-flush Native American tribes.

Gambling has been very, very good to the tribe, which traces its history in Florida back 12,000 years. Seminole Gaming CEO James Allen says the tribe's Hard Rock Café-branded properties in Tampa, Fla., and Hollywood, Fla., are two of the most successful casinos anywhere in the world. Plus, he says the 3,100 member tribe has diversified its business operations, becoming the seventh-largest producer of cattle in the U.S., Florida's largest tobacco seller, and one of the state's largest citrus producers. The tribe has an investment grade (BBB-) rating from Standard & Poor's.

Because it is a sovereign entity, the Seminoles won't reveal details of its finances. But insiders say the two casinos bring in revenues of nearly $1 billion a year. According to the National Indian Gaming Commission, tribal gambling nationally grew from a $5.5 billion industry in 1995 to a $19.5 billion industry in 2004. With all that money, industry watchers say the tribes are poised to break out from their casino base to begin making acquisitions in other industries. "You're going to see more deals in hospitality. They're looking at media and other entertainment, and I wouldn't be surprised to see amusement parks," said Victor Rocha, editor of the Indian gaming Web site Pechanga.net. "The tribes are cash-rich right now."

Read more here.

How is 2007 Looking?

Standard & Poor's Ratings Services believes that in 2007 the biggest influence on U.S. corporate credit quality will continue to be corporate strategic and financial decisions rather than the economy's performance. S&P still expects efforts to enhance shareholder value, including leveraged buyouts, stock buybacks, and special cash dividends, as well as mergers and acquisitions—and the attendant execution issues—to drive rating activity. This dynamic should continue through next year, especially considering the anticipated continuing high activity of private equity firms and hedge funds.

Consumer spending, always an important part of the economy, should be relatively unaffected through the first part of 2007, despite a slumping housing market and higher interest rates. "Since the summer, lower energy prices have translated into solid sales performance for retailers. Money not spent at the gas pump goes straight to the shopping malls," says Standard & Poor's Managing Director John Bilardello. "But with a negative savings rate and higher levels of consumer debt, the momentum of consumer spending could slow in the latter part of the year, with negative implications for credit quality in some industries."

Further softening in the housing market could hurt building material manufacturers, specialty chemical companies, and forest product companies. A pullback in consumer spending could also temper expectations for higher profit margins in consumer-oriented sectors, as people become more realistic about their spending habits and curtail purchases of furniture, appliances, garden equipment, and other discretionary goods.

Read the full story here.