The slow recovery in the U.S. jobs market can be connected to lackluster growth in start-up companies, which in turn can be explained by the crash of the U.S. housing market.
In a new research note, San Francisco Fed economist Liz Laderman and VP Sylvain Leduc say dipping into personal assets is often critical to getting financing for a start-up business. When housing prices tanked, so did the ability of individuals to get loans to set up firms.
As a result, start-up jobs growth remains well below its 20-year historical average of running 20 percentage points higher than regular firms’ job growth:
What’s more, the Fed says, start-ups have historically been critical to allowing a swift bounce-back from jobs losses after recessions. That has not happened here.
“Because start-ups add so many jobs early in recoveries, even modest slowdowns in the creation of new businesses could significantly reduce overall employment growth,” they write.
The 0nly saving grace is that housing prices have begun to creep upward, which seems to be allowing employment gains to accelerate. For reference, here’s nonfarm payrolls against home prices. A movement in the latter usually precedes changes in the former.