Making a Big Deal out of Nothing

By Johnson, Karen | State Legislatures, June 1994 | Go to article overview

Making a Big Deal out of Nothing


Johnson, Karen, State Legislatures


All some people need to get a business going is a little bit of money and some training. Some states think it's a good idea to provide both.

Frank Hastings needs a new direction after being laid off from his middle management job of 27 years with a large computer engineering firm. Sharon Magee is an unemployed divorced mother with three children who desperately needs a steady income to support her family. Scot Sanderson, trained as a carpenter, is tired of working odd jobs in a small rural community. These three people, like many other Americans, are struggling with the agonies of unemployment and with the challenge of an evolving economy in which the ability to change careers is

essential.

Although these people differ a great deal in experience, they share a common American dream: All of them want to be president--of their own business.

The Self-Employment Option

State and federal employment specialists think self-employment or "micro-enterprise" development is a viable option for the unemployed. These businesses start on a small scale and often require a small line of credit for seed money. State and federal microbusiness assistance programs generally target poor people, working or unemployed, or people who have no other source of credit. In the past three years more than 200 programs have sprung up across the country to encourage entrepreneurs. These programs are structured in different ways and use a variety of techniques to accomplish their goals.

A microenterprise is typically a sole proprietorship with one to five employees and the owner involved in the day-to-day operation of the business. The federal, state and local programs being developed to encourage such businesses generally include training and technical assistance to improve the owner's management skills, and cash or credit for start-up activities or expansion. Many of these microenterprises build on skills that the potential entrepreneur has learned in previous employment or through hobbies or volunteer work. For example, many cottage industries have been created around crafts such as quilting and pottery; others include food preparation and service such as candy making or catering. Many unemployed people have backgrounds that can be adapted to a small business. The training needs, however, are as varied as the type of businesses they choose to operate. And almost all of them lack the cash or credit necessary to begin.

A World of Experience

A recent International Social Security Association study found that since the late 1970s, many countries have established self-employment programs for unemployed workers. The first appeared in France and England. During the 1980s, self-employment programs grew in popularity and spread rapidly throughout Western industrial nations.

These self-employment schemes for the unemployed represent a shift from the objective of income maintenance of most unemployment insurance systems, but operate within their framework. While the programs vary from country to country, there are some similarities. All of them target specific groups, most combine monetary support and labor market assistance, and many require monitoring, support, counseling and evaluation.

Two models emerged from Great Britain and France. The French model consists of lump-sum payments that allow the unemployed to use their unemployment insurance benefits as start-up capital for new small businesses. This lump-sum payment is equivalent to about six to 10 months of unemployment payments. Recipients are also allowed to pool their lump-sum payments to start new firms.

The British model consists of periodic payments provided as a form of income support while the unemployed develop and operate new businesses. Entrepreneurs receive approximately 40 pounds (about $76) a week for a year while starting their new businesses.

Until recently microenterprise training and funding in the United States has been mostly supported by local organizations with little or no assistance from the state or federal government. …

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