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How Many Jobs Will the JOBS Act Produce?

Posted by Larry Doyle on March 28, 2012 4:13 AM |

Smile for the camera.

If it smells like a job, sounds like a job, and feels like a job, you can rest assured that in this day and age most politicians will jump all over it and look for a photo op in the process. In so many words, that is exactly what has transpired with the passage of the JOBS Act. This newly launched government initiative is intended to Jumpstart Our Business Startups.

How might this program work? How many jobs might it generate? Are there any risks involved in the process? Do we dare ask these questions, or should we just accept the fact that it says “jobs” and it is an election year so it must be a good program. Is this the best we get out of Washington these days? 

Thankfully, a Sense on Cents favorite writer did go behind the scenes and ask these questions. Let’s navigate and review the work of Bloomberg’s Susan Antilla as she writes, The JOBS Act Won’t Create That Many Jobs:

When sponsors name a piece of legislation the “JOBS Act” (an acronym for “Jumpstart Our Business Startups”), it’s a good idea to examine their claims about how many jobs it creates. In this case, they’re so overblown that a new name might be in order. “JOBS In Theory” might work.

Supporters of the bill, which awaits President Barack Obama’s signature after passing the House today, cite new provisions that will allow so-called “crowdfunding” as fuel for new jobs. Under the plan, private companies will be able to tell their stories to investors over the Internet without the muss and fuss of registering their shares with the Securities and Exchange Commission.

That may sound a little risky for investors who plunk down as much as several thousand dollars apiece in these million-dollar offerings — but hey, this is about creating jobs, right?

Maybe not.

Representative Patrick McHenry, a North Carolina Republican and a supporter of crowdfunding, said in a March 8 press release that “Economists predict the legislation will lead to a ten percent increase in new business startups, helping to create at least 170,000 jobs in the next five years.” Sounds good to me.

I asked Ryan Minto, McHenry’s spokesman, how they’d come up with that rosy prediction. He told me in an email that economists at Regional Economic Models Inc., known as REMI, had done a study and “provided us with the figure.”

So I asked REMI’s associate economist Scott Michael Nystrom for a copy of the study. He e-mailed a four-page summary that predicted only 100,000 new crowdfunding-related jobs, not 170,000. And those jobs would arrive within eight years, not five.

Nystrom had initially given Minto a preliminary estimate of 170,000 jobs, according to a copy of an email from Nystrom to Minto that Minto shared with me. But you won’t see any update on McHenry’s web page. Nystrom said in an e-mail that REMI had done the research for Republican Senator Scott Brown of Massachusetts, who, like McHenry, supported the legislation.

In the end, though, it almost doesn’t matter. McHenry had said that crowdfunding would lead to new business startups, but it turns out that’s all just a guess anyway. “The 10% increase in start-ups is not a product of research,” Nystrom explained in an e-mail. Bad news, crowdfunding fans: All the economists did was come up with an “if-then” scenario. If business startups were to rise 10 percent as a result of crowdfunding, then the economic models predict 100,000 new jobs by 2020. Problem is, we don’t know if there would be a 10 percent increase — or any increase at all.

Nystrom said “it is difficult to anticipate” what effect crowdfunding might have on startups. Not so difficult for crowdfunding’s supporters to leave us with a wildly exaggerated estimate, though.

We may not know how many jobs the JOBS Act will generate, but I do caution people about committing capital via crowdfunding. Why so? What are the risks in crowdfunding? Our Investing primer points out that,

1. the creation of standard business plans is important so that individuals can be as fully informed as possible when deciding where to commit their capital.

2. a low percentage of new business ventures end up being successful.

Navigate accordingly and while you do look for Susan Antilla’s work often. She always asks the questions that need to be answered.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.

  • Peter S.

    3. An unknown percent of start-up businesses luring investors utilizing crowd-funding through the internet will use this opportunity as merely another vehicle to defraud the unwitting investor, with many targeting specifically our senior citizens.

    4. A high percentage of buisnesses will be unsuccessful. A significant percentage of the unsuccessful attempts to start a new buisness will be by design.

  • BD


    It’s your nephew. I think this is an extremely important piece of legislation. And while I find a lot of your analysis spot on, I didn’t like the view in which you framed the narrative here. Yes, the rep from North Carolina twisted the analysis and fudged the numbers to make this piece of legislation sound like it will create more jobs. However, as Nystrom seems to say, the numbers are little more than guesswork at this point. So, instead of grappling over the 70,000 extra jobs and when or when they won’t arrive. I think you should look at the JOBS Act as a way to empower small business and the entrepreneurs who run them.

    As this Kauffman Foundation report puts it, “startups aren’t everything when it comes to job growth. They’re the only thing.” A closer reading of the report shows that without small businesses, the net job growth in America is 0. Look at the monthly employments numbers and it is small business driving the recent employment growth and (if I paint with a broad brush) virtually all employment growth since 2001 – 1977 if I want to skip a few years. And, unfortunately, with VC firms stressing previous viability and performance thus, late-stage small businesses, initial, seed-capital investment is way down. Read this Silicon Valley Watcher piece and you’ll see that the, “latest report on trends in US Venture investments shows a massive decline of 40% in seed investments in US startups in the final quarter of 2011, and a much larger drop of 48% for the entire year.”

    If the common, unsophisticated investor can gamble $100 in Vegas or donate the same sum on a website like Kiva or Kickstarter (Google them if you must – tsk-tsk), investing that same amount of money in a business you believe in, should not be illegal. And while I never underestimate the power and ingenuity of shysters and pushers of fraud, in the U.K., where laws already permit crowd-funded investing, there have been no reports of fraud to date and millions raised for small businesses.

    To your points above, 1) there are already platforms created, even though crowd funding is still illegal, waiting to become the “ebay” or “amazon” of this area. They will be doing all of the vetting of the companies and the founders. And unlike the SEC or FINRA, their livelihood is dictated by squashing fraud before it ever reaches the investor or the competition will take their place.

    2) It is obvious that a large portion of small businesses fail. That hasn’t hurt us before. In fact, I’m generally encouraged by our economy given the alternatives. Crowd-funding will only improve upon the small business process. Promising companies will gain access to capital and have their model validated while gaining new customers. Other companies will realize they must adjust their model and pivot towards what consumers desire. Still other companies may decide to close up shop, a realization, while tragic, is actually a positive by saving everyone time and money in the long run. Small businesses always have a unique story to tell, crowd-funding gives the best a soap box and a mega phone where before they were just another voice in the din.


  • LD


    My man. Great to hear from you and thanks for sharing this wisdom.

    I am all for promoting small biz and the entrepreneurial spirit. I am also all for protecting investors, especially the less sophisticated who are always the most easily preyed upon.

    I am taking a shot at the politicians who seem to have little real understanding or appreciation for the market and economy. I am also taking a shot at those who would be inclined to commit online fraud.

    I am all for promoting small biz. I would ask why “only” 100k-200k jobs might be generated. Why shouldn’t there be basic requirements for business plans along with some sort of central forums for the funding so an even more vibrant and robust market might be created.

    Again, my concern are the shysters and the pols who really do not know fully the benefits nor the risks.

    Thanks for writing. Great comment with great links. Much appreciated.

  • BD


    Oh, I know. I’m a lurker here on Sense on Cents. I love how you enlighten me on many of the issues and would enlighten many of the pols and shysters if they read a post or two. I just wanted to say how much of a fan I am of this piece of legislation, in spite of, not because of, the men and women who passed it. Although, it was interesting to see that this was something that both side of the aisle could agree on even if they can’t articulate why.

    Keep up the good work and give my best to the family.


    • Peter S.

      BD, just out of curiosity; and because of your extraordinary enthusiasm for this legislation, which our own government’s chief securities regulator expressed grave concerns that it is skirting any semblance of investor protections, what is that you do for a living? Let me also state that I am a big fan of your uncle, though I am not always in agreement with him, he has had the courage to promote and debate some of the most critical financial issue this country has yet to resolve.

  • LD
  • BD


    I’m in the legal field. Feel free to dispense with the jokes. Yes, I am concerned about certain parts of the bill, especially some of the auditing regulations that have been relaxed for companies preparing to go public.

    However, when it comes to the welfare of entrepreneurs and small businesses, I’d rather listen to Mitch Kapor, Steve Case and Jim Newton than the AARP, AFL-CIO and other opponents of this bill.

    That our own government’s chief securities regulator opposes this bill is cause for concern. But the fact of the matter is, some of the regulations being modernized in this bill are almost 100 years old. I’m not saying this piece of legislation is perfect. Anything emerging from Washington seldom is. However, I believe the gains for small business and everyday Americans outweigh the loosing of securities regulations.

    I can’t read this blog and not be for strong financial regulation. But this is a no-brainer for me. If you’re looking to create jobs, you need to support entrepreneurs and small businesses. One way to do this is by giving them access to capital, capital they may not otherwise receive due to an on-going lack of access to credit. As I stated in my previous post, they are the only source of long-term job growth in this country. There is no where else to turn to.

    If you’re looking to empower the individual investor, something I am always for, they will now have opportunities to invest in their community, and companies they can believe in, identify with and frequent. Does that come with certain risks – naturally. But to prevent innovation because of fear or uncertainty is to ignore the better angles of our nature.


    • Peter S.

      A rational response BD. Unfortunately the nightmare of being defrauded for ordinary folks is beyond belief. In my own family, we were defrauded by a family friend and CPA and it took 9 years to make its way through courts after the District Attorney’s Office refused to take the case even though the initial judge adjudicating the matter believed the facts warranted the attention. Ten various families’ lost over a million and half dollars – mostly seniors, including a decorated a Vietnam War veteran double amputee. Justice and the law allow for defendants to delay trials, hide the stolen loot, and drive plaintiffs legal cost to the point where recovery becomes cost prohibitive. The dreadful experience of having your life savings absconded by thieves ruins lives, devastates families, and tattoos a grave humiliation on every victim!
      After my families’ experience with the nightmare of being swindled, I decided to take financial matter into my own hands. I started a career in the mutual fund industry. First I got my then NASD Series 6. Then I got my NASD Series 63. Then I got my NASD Series 7. Then I became a whistle-blower.

  • LD

    Mark L. Morze knows a good investment opportunity when he sees one, but he hasn’t pursued his fortunes quite the way the rest of us have. Morze, 61, hung his hat for 4 1/2 years at federal prisons in Lompoc and Boron, California, after pleading guilty to two counts of fraud for cooking the books at the infamous carpet-cleaning company ZZZZ Best (ZBSTQ) in the 1980s.

    He says he’s baffled that President Barack Obama plans to sign a law tomorrow that amounts to an open invitation for fraud. “I wish legislators would consult with people like me before they write something like this,” he says, sounding dead serious about the offer. “I could tell them, ‘I know what your intent was with this wording, but we can get around it so easily, it cracks me up.”’

    Ex-Con Man Says JOBS Law makes Guys Like Him Rich

  • LD

    More fuel to add to the ‘fraud’ fire…

    An analysis for The Wall Street Journal lends some support to the JOBS Act’s detractors. The analysis, by, suggests that since 2004, when the Sarbanes-Oxley requirement for internal-control inspections took effect, 104 companies that have had issues with their anti-error, anti-fraud procedures, including StoneMor, would have been exempt from auditor scrutiny of those procedures if the JOBS Act had been in effect at the time.

    The review doesn’t mean the JOBS Act would have led to missed problems at 104 companies. Not all flaws with a company’s internal controls lead to financial problems, and many such problems could be found even if outside auditors aren’t required to look. Under the JOBS Act, companies will still have to have their own management assess internal controls and disclose any weaknesses they find, as they do now.

    Also, even though an auditor review won’t be required for emerging-growth companies, they may still get internal-control audits voluntarily to show investors a clean bill of accounting.

    But to the extent eligible companies take advantage of the legislation’s provisions, investors may not find out as much in the future about companies’ ability to prevent financial errors and fraud.

    JOBS Act Could Let Financial Flaws Slip Through

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