MaineBusiness.com

Now that the economic evidence increasingly indicates the Great Recession is over and concerns over a double-dip or W-shaped recession seem to be fading, the question of job creation has risen to the forefront of policy concerns.

Considerable debate is raging among policy wonks about the federal stimulus program, whether it worked or not and whether a second package would be beneficial.

But the heart of the matter lies in business confidence and the start-up and hiring practices of the private sector.

Businesses that have cut costs and survived the recession must now decide when new sales are sufficiently strong to justify adding employees. And those with new ideas must decide when to take the plunge and start a new business.

It is interesting in this regard to look at the history of these decisions over Maine's recent past to see if they offer any insights about what will happen next.

The number of jobs available in any given year is the result of individual changes – people starting or expanding businesses and others closing or cutting positions. Looking at this dynamic in Maine over the past 15 years reveals, at least to me, a somewhat surprising pattern.

The most striking change in Maine is not the birth and death of businesses. Nor is it the expansion or contraction of businesses. The most notable fact about Maine's pattern of business change is the percentage of businesses that make no change, that stand pat.

In 1993, the first year for which data are available, 38.5 percent of Maine businesses reported no change in employment. Over the next few years, that figure stayed about the same, bouncing above and below 39 percent. Then in 1998, it jumped to 39.5 percent and has risen steadily ever since, reaching 45.4 percent in the first quarter of 2009.

At first blush, this pattern would seem to be good news – stability, after all, is better than decline – at least for those fortunate enough to have jobs with these firms.

From the perspective of the economy as a whole, however, stability looks more like stagnation. During the same period that showed an increase in the share of Maine firms that neither added nor cut jobs, the percentage of Maine firms adding jobs began to decline.

In 1999, nearly one quarter of Maine firms added jobs – 24.5 percent. Since that time, that share has fallen steadily, dropping to 17.8 percent in the first quarter of 2009.

In sum, if the birth and death rates of firms remain about the same (as they have since about 2000) and formerly growing firms become stable firms, Maine's economy will cease to grow. And that seems to be what has happened over the past decade.

Firms that once were adding jobs have become firms that don't cut jobs.

Such "damning with faint praise" is hardly the way to bring recovery to a struggling economy.

Maine needs to raise its expectations. While many seem to think that keeping things as they are should be our goal, the hard facts of the labor market show that such low expectations mean declining prosperity and dim prospects for the long run.

Dynamic economies need churn. We need lots of people starting businesses, as some businesses fail, and an increasing percentage of the new enterprises becoming successful and growing.

Stability is not the same thing as sustainability.

Charles Lawton is senior economist for Planning Decisions, a public policy research firm. He can be reached at: clawton@maine.rr.com