Enabling Small Business Job Growth: An Entrepreneur's Counter-Proposal to President Obama

The Obama Administration's re-election prospects depend on getting more Americans back to work. This requires reviving hiring in the small business sector, the country's traditional employment engine. Unfortunately, the administration's proposed programs are incompatible with the dynamism that enables small business job growth. But with a more flexible approach, President Obama could deliver a winner.

The administration understands the obstacles to small business hiring. Its recent report "Moving America's Small Businesses & Entrepreneurs Forward: Creating an Economy Built to Last" states "America's businesses face a skills shortage that threatens to hamper their ability to compete. Despite high unemployment, many businesses struggle to find enough workers with the skills and training they need." Consistent with this finding, the OECD ("Better Skills, Better Jobs, Better Lives: A Strategic Approach to Skills Policies," May 21, 2012) notes that more than half of U.S. employers are challenged to fill positions because of a lack of suitably skilled candidates, a rate exceeded in only four other developed economies.

To develop the 21st century workforce we need, President Obama proposes an $8 billion Community College to Career Fund to train two million workers with skills leading to immediate employment. The Fund will also support entrepreneurship certification for 100,000 small business owners. Unfortunately, the proposed Fund, like the current Federal Workforce Investment Act ("WIA") and prior Job Training Partnership Act, is not designed to meet the needs of small businesses.

The Fund proposes to expand financial support of the key elements of the existing program for training the unemployed at community colleges. WIA training grants cover courses in "labor demand occupations," determined by crude measures, such as national surveys of online job postings. This doesn't help entrepreneurial firms founded to meet needs that our customer markets have not yet identified. Did anyone read an online job posting for a worker to build a new search algorithm business or mobile device? Because the positions offered by new business models cannot be measured as "labor demand occupations," an unemployed person cannot receive training for them. National surveys of online job postings (often blind ads) miss real local needs.

Correcting the mismatch between the skills of the unemployed and the hiring needs of small businesses is complicated by the fact that many people are small business owners for lack of choice. Self-employment is often the only option for the long-term unemployed who can hire themselves at lower cost than large corporations, with substantial overhead, can do. That is why the Self-Employment Assistance Program allows participants to focus full-time on starting new businesses, with minimal reporting requirements.

At the polar opposite of flexibility and dynamism are community college training programs eligible for federal funding, as they are typically structured as certificate programs. This has the effect of discouraging those who need more limited training by needlessly increasing their required time commitment.

There are better, less costly solutions to the dual problems of high unemployment and small business shortages of skilled staff. Some states offer an "Unemployed Persons Training Program" that provides tuition waivers for use at in-state public colleges and universities. Unemployed persons go on a wait list for admission just before the start of class, when it is confirmed that the fixed cost of the class has been covered by sufficient enrollment of paying students. The incremental cost of filling another seat is negligible.

In addition to its low cost, the program offers another advantage -- participants have the flexibility to choose courses that will lead to employment based on their interview experiences and local job market research, not on a bureaucratic calculus of "in-demand occupations." There is no need to risk an immediate employment opportunity to complete six or ten courses required of a certificate when only two or three are needed to get the job offer.

Where tuition waiver programs exist, they are open to those registered with their local workforce centers, excluding many unemployed individuals who could benefit. Recent graduates who cannot collect unemployment benefits, but are nevertheless unable to find work, are ineligible for training. So are the participants in the Self-Employed Assistance Program, who might benefit from courses in social media or web design, outside the strict constructs of "entrepreneurial certification," to make their new ventures sustainable employment. Finally, part-time workers or small business owners or employees who are under-utilized could also benefit from flexible programs to upgrade their skills.

Rigid solutions don't address the needs of dynamic small businesses and those eager to be hired by them. A more effective and affordable approach is to modify the tuition waiver program to meet small business needs for skilled workers. If President Obama does not champion this approach, there is no reason that the governors could not do so for their own states.

After all, it is an election year.