California's Missed Opportunity to Help The Unemployed

Posted on 23 July 2013

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By Claudia Viek

California Association for Micro Enterprise Opportunity

This legislative session, California missed an opportunity to create a Self-Employment Assistance (SEA) program that would have created 5,200 new businesses and 15,000 new jobs - from the ranks of the unemployed. Furthermore, the State missed the opportunity to receive $5.3 million in federal funds committed to run the program.

AB 152, Self-Employment Assistance program (Yamada) would have allowed the unemployed to keep their benefits while starting their own businesses. However, the bill didn’t make it out of the Assembly Appropriations Committee because the Employment Development Division (EDD) estimated that the cost of the program would exceed the $5.3 million available from the federal government.

The SEA target population is highly motivated to transition out of the Unemployment Insurance system. They are profiled as highly likely to exhaust their benefits due to fact that there are no jobs available. This is especially true for the 50+ age group.

Consider David from Southern California. David lost his job of 27 years with a Fortune 500 company, partly because he was too expensive. David said, “I’m 50 years old. They can hire a 22 year old for a lot less. I’m dead in the water if I try to stay in the same industry.” David is starting his own business; he’s going into fiduciary management. But it’s hard to transition to a new career. No one pays you while you’re getting your license. David has a family to support and children to send to college in a few years. He’s learning skills to start his own business, but he has to waste time sending out resumés in a fruitless job search to keep receiving his UI benefits.

Corporations and government are shedding jobs but self-employment is growing rapidly. The share of the self-employed in the labor market is growing exponentially - from 1.4% before 2000 to 3.5% post-2000 (see graph). The trend is expected to continue. The State of Independence Report by Emergent Research found “the number of independent workers grew from 16 million in 2011 to 16.9 million in 2012 and it is expected to grow by 35% over the next five years. Self-employment is a labor market trend. And when entrepreneurs receive business training and support, 80% make it through the start-up phase and create an average of two additional jobs over three to five years.

Yet, the current system is not meeting the needs of today’s unemployed and today’s market realities. It trains people for jobs that have disappeared. We need to reform the system to create jobs. Promoting, encouraging and supporting self-employment is one strategy.

We understand that the recession has left a huge workload for the unemployment system. The state owes the federal government about $10 billion and pays $400 million in interest alone. This year, fixing this is taking up all of the oxygen at the EDD and Department of Labor. However, the SEA program is small; it would have affected about 1% of the unemployed. The project could have been redesigned to cost much less than EDD’s estimate.

All options need to be explored to help the unemployed find a new career path and that includes self-employment. Instead of giving a laid off engineer tips on how to find jobs and write resumés, let’s have her learn how to write a business plan so that her consulting business can be successful. Instead of relying on other companies to hire veterans, let’s also support their entrepreneurial energy by helping them start their own businesses.

California Association for Micro Enterprise Opportunity will continue to help the unemployed create their own businesses. We will continue to building a strong coalition of groups who recognize that self-employment is a key part of our state’s emerging economy and the institutional infrastructure needs to keep up with the labor market trends. These groups include Small Business Majority, California Reinvestment Coalition, National Asian American Coalition, Corporation for Enterprise Development, and several dozen microlenders, Small Business Development Centers and other non-profit entrepreneurial training organizations. We also intend to work with the California Workforce Investment Board (WIB) to develop guidelines to encourage local WIBs to support entrepreneurship and train those local WIBs on entrepreneurial readiness.

We need to provide the unemployed with hope for the future and not just a job search to nowhere.

Claudia Viek is CEO of CAMEO, the California Association for Micro Enterprise Opportunity - the statewide network of microlenders (loans under $50K) and business training programs (think mini-MBA).