More Unemployed Execs Are Launching Startups as Jobs Become Scarce

NEW YORK (MainStreet) — With 94 metropolitan areas seeing unemployment at or below 5%, local job markets are growing increasingly competitive. At such low levels, it becomes an even greater challenge for employers to hire from a local labor pool. Major metro areas such as San Francisco, Washington, D.C., Dallas and Boston are seeing some of the lowest unemployment rates in years. Out-of-work executives and managers are finding fewer job opportunities and many of them are taking matters into their own hands: starting a business of their own.

Nearly 6% of unemployed job seekers from the ranks of management decided to launch a start-up in the first half of this year, up 4% from the same period a year ago, according to outplacement consultancy Challenger, Gray & Christmas.

"As the economy and job market continue to expand and we get closer to full employment, self-employment will begin to rise again, as the confidence factor increases and the risk factor decreases," says John A. Challenger, CEO of Challenger, Gray & Christmas. "We may be on the leading edge of that increase. There are, in fact, many areas of the country already near full employment. In these markets, jobs are plentiful, but so are opportunities for prospective entrepreneurs."

While the rate of startups can fluctuate significantly from quarter to quarter, Challenger says the overall startup rate is trending slowly upward from record lows in 2011.

"We tend to see an increase in job seekers starting businesses in the immediate wake of a downturn, as job openings decrease," says Challenger. "Once we start to see job gains, even in the nascent stages, people start moving away from the relative uncertainty of self-employment toward more traditional job opportunities."

He says the vast majority of the entrepreneurs represented in their latest survey are starting one-person operations as consultants, contract workers or freelancers.

"In addition to whatever service or expertise these entrepreneurs are providing to clients and prospective [clients], they must also take on the roles of marketing and business development, accounting and business management," he says. "Further stress and anxiety come from the fact that the start-up operation is typically funded by friends and family, personal savings, and/or credit cards — not venture capitalists or investment banks."

The Federal Reserve Bank of St. Louis reports the national unemployment rate for management, professional and related occupations to be 3.5% as of June, its lowest since December 2008.

—Written by Hal M. Bundrick for MainStreet

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