Hung-bin ding, Ph.D., associate professor of management and international business, discusses the role of incubator firms in job creation and economic development. (more here on how this relates to his research and coursework)
Where does the American job market stand today?
While economists are debating whether the latest recession has come to an end or the economy is about to dip again, the federal government’s labor report for July shows the rate of unemployment remains unchanged at 9.5 percent. There may be early signs of economic recovery, but businesses are still not hiring. As Americans search for more jobs, U.S. federal and state governments are trying to counter the stubborn employment challenges with a universal stimulus package or significant investment in select industries.
How can business address job creation in a down economy?
Big budget initiatives are not the only way to create new jobs. In the last 30 years, large and small and urban and rural communities across the nation have been using business incubators to create new, high-paying local jobs. Back in 1980, there were only 10 business incubators in the U.S. and fewer overseas. After much accumulation of knowledge in the last two decades, business incubation has become an emerging industry itself. In the era of jobless recovery, business incubators are a relatively inexpensive option to complement the major governmental investment projects to create new jobs and wealth.
Today there are about 7,000 business incubators around the world, and the U.S. is home to more than 1,100. They are founded and affiliated with the government, higher education institutions, foundations, and private investors.
How do incubators contribute to the economy?
In various forms, business incubators put promising new ventures in an entrepreneurial environment to help these ventures succeed and grow. After surviving the hardship of startup, new firms contribute to their local economies by hiring people and paying taxes. Community leaders have been generally supportive of the idea of generating new jobs through locally sponsored business incubators because of the job-creating power of emerging new firms. According to a 2010 report on job creation and business startups by the Kauffman Foundation, new startup firms add three million jobs to the U.S. economy per year whereas one million jobs were lost from existing firms over the period of 1977-2005. The promises of new jobs and new tax bases fuel the growth of business incubators in numbers and in variations.
In addition to the potential in job creation, incubators are attractive to communities and governments because such operations require much less capital investment than highways or commercial structures. A “classic” business incubator consists of three major elements: a building with spaces for rent, shared facility and administrative support, and a director of the incubator. Rent paid by the tenant companies is a major source of income. Although the rental rate of incubator spaces is not necessarily lower than the comparable properties, tenant firms gain access to shared resources such as administrative support, meeting room, or copy machines with other tenant companies. The incubator director—typically an individual with substantial entrepreneurial experiences—coaches and mentors tenant startups to navigate the venturing process.
Finally, many incubators sponsor seminars and networking events to help startups get connected to the entrepreneurial resources in the region. Working side-by-side with fellow entrepreneurs also cultivates an entrepreneurial culture in the building.