The percentage of job seekers starting their own businesses or relocating for new positions fell to historic lows in 2010, according to a new report that attributes the declines to an increased aversion to risk-taking just as the job market begins to show some signs of life.
In its latest quarterly Job Market Index, global outplacement and executive coaching consultancy Challenger, Gray & Christmas, Inc., located in Chicago, found that over 2010, an average of just 4.7 percent of unemployed managers and executives started their own firms. That is down from an average of 8.6 percent in 2009 and is, in fact, the weakest start-up activity on record since the firm began its tracking in 1986.
The recession created a particularly difficult environment for would-be entrepreneurs. The previous record low for start-up activity among job seekers was 2008, when only 5.1 percent of former managers and executives started their own businesses.
"This recession saw the near collapse of the banking sector. As a result, it was and still is, in some cases, very difficult to secure lending for new business ventures. In addition to the impact on start-ups, the recession, which really began with the bursting of the housing market bubble, has made it nearly impossible for job seekers to relocate for new positions," said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.
Last year, an average of just 7.6 percent of job seekers relocated each quarter for new positions. This figure also represents a record low. It is down from an annual average relocation rate of 13.3 percent in 2009 and four percentage points below than the previous low of 11.6 percent, recorded in 2008.
"Continued weakness in the housing market is undoubtedly a leading factor behind the decline in relocation. And, new reports suggest that the situation could get worse. The New York Times is reporting that areas that had enjoyed a relatively stable housing market, such as Seattle, Minneapolis and Atlanta, are now starting to see prices slump," said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.
"Job seekers who own a home - even if they are open to relocating for a new job - are basically stuck where they are if they are unable or unwilling to sell their homes without incurring a significant loss.
"In a strong job market, where talent is difficult to find, employers might be more willing to help offset some of the financial loss associated with relocation. However, at this early stage of the recovery, companies are still in cost-containment mode," he added.
Job seekers may also be opting to eschew relocation due to increased confidence in their ability to find employment locally.
"Many areas have seen slight improvements in the job market over the past year. While the gains have been small, for the most part, they may have been enough to lift job seekers from the sense of desperation that often compels people to relocate," said Challenger.
It appears that the job market is beginning to loosen up in some areas. The latest report from the Bureau of Labor Statistics shows that unemployment rates in December were lower than a year earlier in 238 of the 372 metropolitan areas tracked by the agency. Additionally, 200 metropolitan areas reported year-over-year increases in nonfarm payroll employment.
Improvements in the job market also may have contributed to the sharp decline in start-up activity.
"Starting a business is a risky endeavor, even in the best economy. It has been particularly difficult in this recession-recovery cycle because of more stringent lending practices. Loans are still not easy to secure, so as the employment picture brightens, more job seekers are abandoning entrepreneurial aspirations for the stability of a full-time position," said Challenger.
Indeed, Bureau of Labor Statistics data also showed a decline in self- employment. In the fourth quarter of 2009, the Bureau counted an average of just over 9.0 million self-employed workers. In the fourth quarter of 2010, the average was down 2.3 percent to about 8.8 million. In contrast, the number self-employed Americans reached a pre-recession peak of nearly 10 million in December 2006.
"It may seem counterintuitive, but we could see an increase in self-employment, as the economy and job market improve. Right now, job seekers feel compelled to take the first stable position that comes along. When they feel more confident about their job prospects, they may be more willing to explore entrepreneurship, figuring that if it doesn't work out, they can jump back into the labor pool," said Challenger.
"The same can be said for relocation. As the economy continues to improve, job seekers should find themselves in a better position to relocate. Not only could home prices recover, but companies may be more willing to help reimburse losses incurred by relocating employees. A stronger economy will also ease job seekers' fears about relocating only to lose the new job after a short time, due to a double-dip recession or some other unforeseeable event, and being stuck in a new city without an established social or professional network," said Challenger.
The Challenger Job Market Index is based on an exit survey of job seekers leaving the Challenger program after successfully finding employment. While the survey sample tends to skew more toward managers and executives, a variety of industries and occupations from around the country are represented.