Are start-up costs choking Maine businesses?
That’s the question posed by the conservative think-tank Maine Heritage Policy Center after releasing a series of reports this week on job creation in Maine.
The reports find that the state created just over 40,000 jobs from 1993-2007. “While the good news is that job growth has been positive, the bad news is that this is the 10th-worst level of job creation in the country,” MHPC said in a news release today.
The reports, which draw from data on 161,000 Maine businesses between 1993 and 2007, address shifts in the number of jobs from three areas: businesses growing or shrinking; businesses leaving or moving to Maine; and new businesses starting up or folding in the state.
During the time period analyzed, new start-ups created 29,755 jobs a year, but 30,359 were lost from closures, resulting in an average loss of 604. Over the entire period, Maine lost more than 9,000 jobs, ranking it 30th in the nation for job creation/loss to the birth and death of establishments.
“Right now we have a job crisis on our hands,” says Scott Moody, chief economist of MPHC and author of the reports. Maine’s unemployment rate in May was 8 percent, down slightly from the previous month, and decidedly better than the national rate of 9.7 percent. “In order to grow Maine’s economy, it’s going to have to come from the start-up,” he said.
Moody says tax and regulatory compliance costs may be hindering start-ups from flourishing. Though the state offers tax breaks for new businesses, the hassle of getting permits and filing papers can be a burden on entrepreneurs, says Moody. “Even when you don’t owe taxes, you still have to file a ton of paperwork, he said. “That paperwork is a distraction from running your business.”
“Start-ups really shouldn’t have to deal with the same tax issues as a major corporation,” he said.
MHPC plans to hold a series of round-table discussions with Maine business owners in an effort to find out what’s keeping businesses from getting off the ground.
Charlie Colgan, former Maine state economist and chair of the Community Planning and Development Program at the Muskie School at the University of Southern Maine, was skeptical of early efforts to draw a link between high taxes and start-ups failing.
“As a piece of inferential statistics, it’s pretty weak,” he said.
Colgan also said the report on business migration proves little about Maine’s business climate. Over the 15-year period, Maine lost more than 1,000 jobs from businesses leaving, ranking it 31st in the country, according to the MHPC.
“The thing that stood out from that one is how little of an effect business migration has,” Colgan said. “A thousand jobs over 14 years — whether it was plus or minus — is basically rounding error.”
Historically, said Colgan, “companies moving around don’t account for very much in the net changes in jobs.”
The study on births and deaths of businesses finds that Maine shed 9,057 jobs from 1993-2007, a trend cited in the report as “worrisome.” But the report on relative growth of businesses shows 44,864 new jobs were created through expansion of existing businesses over the same period.
“The good news is we are seeing job growth among existing businesses,” said Moody. “If you’re an existing business in Maine, you can hang on.”