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Small Business Is Dying

Does anyone really take the official U.S. unemployment figure seriously? My bet is the monthly number, as reported by the Bureau of Labor Statistics, will no longer be trusted by media, economists, politicians, and investors -- not to mention the public.

We were recently told by the Labor Department that unemployment fell to 6.7% in December from 7% in November. But they also told us that the economy created only 74,000 new jobs in December, far below the 200,000 new jobs economists had expected.

The official unemployment rate is an inaccurate mess, because it doesn't count people who have quit looking for work. And an unemployment rate of 6.7% is not only horribly misleading, but now a cruel misrepresentation of the millions of unemployed and underemployed Americans who are growing discouraged and feel emotionally destroyed.

We need new metrics real fast, and Gallup has developed one. It's called Payroll-to-Population (P2P), and it's a very clear metric with no messiness or complicated formulas. Gallup's P2P simply represents the percent of adults in full-time jobs with a paycheck as a percentage of the total U.S. adult population. P2P answers the most pressing question of the day: What percent of American adults have a full-time job?

While the federal government touted an improved unemployment rate, Gallup's P2P rate fell to 42.9% in December, from 43.7% in November. The current rate is the lowest Gallup has measured since March 2011.

I'm not optimistic that this number is going to substantially improve anytime soon -- not until the country's leadership understands the severity of our jobs problem and understands the source of true, organic job creation -- which is new business startups.

On that front, the news is deadly. According to the U.S. Census Bureau, the total number of new business startups and business closures per year -- the birth and death rates of American companies -- have just crossed for the first time since the measurement began. Here, I am referring to employer businesses, those with one or more employees, the real engines of economic growth. Four hundred thousand new businesses are now being born annually nationwide, while 470,000 are dying annually nationwide.

The deaths of businesses now outnumber the births of businesses.

Up to 2008, startups outpaced business failures by about 100,000 per year. But in the past six years, that number turned upside down. As you read this, we are at minus 70,000 in terms of business survival. (The data are very slow coming out of the U.S. Census Bureau, via the Small Business Administration, so it lags real time by two years.)

The real job market, with organically created jobs from the hearts and minds of American small- business people -- American entrepreneurs -- is now in critical condition. One could conclude that America's free enterprise spirit is dying or, at best, is very sick.

Leaders should take new business startups and entrepreneurship very seriously: 50% of all jobs are in small businesses and approximately 65% of all new good jobs are created by them, according to the Small Business Administration. Gallup is sure taking this seriously. We just launched our Entrepreneurial StrengthsFinder assessment, which aims to help America -- and the world -- find and develop our best and most talented business builders.

American leadership has a clear choice here. It can continue to tout dishonest unemployment figures while coming up with no real solutions to the jobs crisis that now afflicts millions of Americans. Or it can base policies on honest employment figures and begin attacking the jobs problem by rekindling the country's spirit -- the spirit of free enterprise.


Jim Clifton is Chairman of Gallup.

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