It may come as a surprise that Americans are less likely to start a business, move to another region of the country, or switch jobs than at any time in recent memory.  In fact, our economic and job-creation engine is “rapidly slowing down,” according to an analysis by the Economic Innovation Group (EIG), a non-profit research and advocacy organization. (The group’s full analysis can be found at http://eig.org/dynamism).

Put another way, for the first time on record, U.S. companies are actually dying at a faster clip than they are being born.  EIG attributes this reversal of good fortune to the Great Recession, which threw the cycle of creation in the economy out of balance.

Why does this matter? New firms help to keep the economy in a constant state of rebirth, helping to replace dying industries, foster competition with existing businesses and stimulate new, higher-wage jobs.

However, during the recovery from the Great Recession between 2010-14, EIG said the economy added 104,600 firms. By contrast, the recovery from 1983-87, when the size of the national economy was much smaller, the U.S. added 491,600 new businesses.

Even more stunning, the vast majority of business creation is concentrated in a handful of metropolitan hubs. According to EIG, from 2010-14, five metro areas–New York, Miami, Los Angeles, Houston and Dallas–produced as big an increase in businesses as the rest of the nation combined.

By contrast, nearly nine out of 10 metro areas started to shed businesses faster than they could open.  “Things aren’t close to returning to normal,” EIG’s report said, adding that only one in seven metro areas now keeps pace with the national startup rate.  The rapid retreat from business creation is also intensifying “geographic inequality” in the country, EIG said.

People feel the impact of diminishing startup creation most acutely in the job market. New businesses are an important source of demand for workers and the primary generator of jobs for the future. According to EIG, the dearth of new companies cost nearly 1 million jobs in 2014 alone. New businesses are responsible for nearly all the net new jobs in the U.S. economy.

What to do about this?  EIG’s report said economic policy should be focused on addressing geographic inequality and business creation first and foremost. Policymakers can start by asking the right questions:  For example, how can we make it easier for entrepreneurs to access the capital they need to grow their companies?

EIG was formed in 2013–with support from Silicon Valley bigwigs Sean Parker and Ron Conway–to craft centrist proposals to stimulate the economy and press Congress to back them. The group helped develop the bipartisan Investing In Opportunity Act, legislation that would put billions of dollars in new private investment to work in distressed communities throughout America.

Introduced in 2016 in both the House and Senate, it has yet to pass either chamber.

 

 

A report yesterday by the new media website Axios should have gotten more news coverage and social media attention  than it did.

Axios reported that a “little-noticed” provision of the Senate health bill that provides new insurance options for small businesses and the self-employed–small business health plans, or SBHPs–could potentially make it harder for sick people and those with pre-existing conditions to obtain affordable coverage.

In a letter to members of Congress and governors, the American Academy of Actuaries said the provision could cause “fragmentation of the market resulting from an unlevel playing field. This is likely to lead to cherry-picking, adverse selection and increased costs for sicker individuals.”

The Senate bill would allow small businesses and self-employed workers to use a new type of health plan which is basically a type of association health plan, albeit one that’s more loosely regulated than existing plans under the Affordable Care Act (ACA). That is likely to mollify Senate conservatives but would be a harder sell to moderates.

For example, as envisioned by the Senate health bill, these plans wouldn’t have to abide by the same protections for people with pre-existing conditions nor would they be required to cover the ACA’s essential health benefits, such as prescription drug coverage.

Some experts are worried about how this would all play out.  In a June 30 policy brief, the nonpartisan Kaiser Family Foundation wrote: “If enacted, this provision would considerably disrupt the small group market because small employers could seek lower rates or less comprehensive coverage in a SBHP when their employees are healthy, but theoretically move back to regular small group market plans if an employee becomes ill or if the group wants more comprehensive benefits.”

Kaiser said this type of “adverse selection” could result in “significant” premium increases and destabilize the small group market. They also said the provision could similarly “disrupt” the non-group market because it would “permit self-employed individuals (in states that choose to regulate very small groups of one as small employers) to join SBHPs when they are healthy or want few benefits, but move back to regular non-group coverage if their health or circumstances change.”

In 2014, 20 percent of the people who bought coverage through the ACA’s exchanges were small-business owners or self-employed.

Obama-era regulations could mitigate some of the potential disruption. Those rules permitted some people–including many healthy people–to keep pre-ACA coverage or sign up for new policies that also didn’t comply with all of the ACA.

Actuaries offered another potential fix:  “If the rules governing [association health plans] were consistent with those governing non [association health plans], there would be fewer concerns about market fragmentation.”