Should Entrepreneurs Get Unemployment Benefits to Start Businesses?

Date posted: June 5, 2012

By Rieva Lesonsky

If you or someone you know has been laid off, your first thought as you start the paperwork to collect unemployment benefits might be looking for another job. Your second might be starting your own business. But how will you support yourself during startup, when your business isn’t bringing in enough profits to pay you? If the U.S. Department of Labor has its way, you might be able to fund your startup using unemployment insurance benefits.

The DOL’s new initiative, Self-Employment Assistance Programs (SEA), would allow people on unemployment insurance to continue receiving their unemployment benefits while they launch new businesses. Mashable recently reported on the push, which builds on programs already available in five states.

Most states allow recipients to collect unemployment benefits only if they can prove they are actively searching for a new job. SEA waives this requirement and enables recipients to get their unemployment benefits for up to 26 weeks—just like others receiving unemployment benefits—as long as they can prove they are working on a “credible” business, which means having a viable business plan and getting training in entrepreneurship.

The Department of Labor can’t require each state to create a SEA program, but it has made $35 million in funding available for states to do so. It has also created guidelines that explain how state governments can institute the new program.

Time reports that just a few states–Oregon, Delaware, Maine, New York and New Jersey–have created SEA programs. In Oregon, a survey of SEA participants found that successful entrepreneurs have created an average of 2.63 new jobs each, prompting Senator Ron Wyden (D-OR) to tell Time the plan’s success has “far outdistanced the cost.”

In announcing the plan, Labor Secretary Hilda L. Solis said, “Self-Employment Assistance has proven to be a valuable tool in helping many unemployed Americans realize the dream of business ownership in Oregon and around the country. These grants will help improve and expand these state programs while strengthening the economy and creating new jobs as more startups launch and grow.”

While some might say that collecting unemployment insurance while you start a business is opposed to the independent spirit of entrepreneurship, I disagree. For many startup entrepreneurs, the lack of capital is a crucial barrier to getting off the ground. Unemployment benefits to help deserving entrepreneurs start viable businesses pay off for more than just the entrepreneurs in question—they pay off for the whole community by creating jobs and stimulating economic growth.

There’s a lot of lip service to small businesses as job creators – now, here’s a program that can truly help them create jobs. If you agree, urge your state’s representatives to take action and adopt SEA.

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