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After layoffs, states try to create entrepreneurs

Until this summer, salesman Jorge Ocampo had always been what he calls a W-2 man. Proof was the Mercedes he bought with cash. But he had always longed to be his own boss.
Image: Jorge Ocampo in his home office
"Frankly, the way it's going, I don't know if I'll ever go back to be a W-2 employee," says Jorge Ocampo, of returning to working for someone else.Rick Bowmer / AP
/ Source: The Associated Press

Until this summer, salesman Jorge Ocampo had always been what he calls a W-2 man. Proof was the Mercedes he bought with cash. But he had always longed to be his own boss.

"Almost every day I thought of it," the 54-year-old said.

The opportunity came June 2 when he was laid off from a high-tech company. Unlike the millions of people drawing an unemployment check, he enrolled in a little-known program approved by Congress that gives the jobless the weekly cash benefit but also trains them to run their own business.

And the newly minted small-business owner gets to keep the profits, too.

The program is available in only eight states, mostly along the coasts. In Oregon, the recession brought one of the nation's highest unemployment rates — about 175,000 are getting jobless benefits. Interest in the program, one of the largest, has jumped by about 75 percent, bringing the yearly total of recipients to nearly 600.

"They can't buy a job, so they get to make one up," says Pat Sanderlin, who runs the program. "Right now, you've got people coming into this in survival mode."

Maine and Washington, which added its program in 2008, report strong interest.

The program however has languished elsewhere in the face of opposition from businesses, a shortage of money for program expenses such as training and counseling, and a lack of interest on the part of unemployed wage-earners.

Business opposition often focuses on the taxes that employers pay to provide unemployment insurance.

"They're paying for the privilege of financing someone who would be going into business against them," said David Clough, lobbyist for the National Federation of Independent Business in New Hampshire, where a bill to establish self-employment aid died this year over fears about its impact on the state's unemployment trust fund.

Legislation ratifying the 1993 North American Free Trade Agreement allowed states to offer such aid, an idea widely used in Europe and Canada. In the U.S., the idea's historians say, the late-Sen. Edward Kennedy and Oregon's Ron Wyden, then a congressman and now a senator, championed the program.

For years, the unemployment system was geared to help jobless manufacturing workers weather economic downturns so they can be ready to pick up their lunch buckets and put on hard hats when times were better, said Randall Eberts, president of the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich.

The program was designed to help those workers considered "dislocated" — meaning they weren't likely to get their old jobs back. These primarily white-collar and service sector workers could use their transferable skills to start their own businesses.

Seven of the states that offer self-employment assistance started their programs in the 1990s, and the programs remain small, rarely approaching the federal limit of 5 percent of those drawing unemployment benefits in a state.

California once offered the aid, but state officials report there was little interest and the program lapsed in 1998. Pennsylvania, Delaware and New Jersey say numbers are down.

"We can't say for sure," said spokeswoman Marcela Ospina Maziarz of the New Jersey labor department in an e-mail exchange. "It is possible that people may see a bigger risk to start a business in this economy."

Maryland's program is expected to remain steady. Data from New York, the largest state with such a program, were unavailable despite multiple requests to the state Department of Labor.

States that offer the program say people start a great variety of businesses. Restaurants are common, as are landscaping services. Sanderlin says Oregon recipients are frequently high-tech workers who start Web design businesses.

Ocampo runs his free-lance sales operation from a home office in suburban Portland, and can draw half a year of unemployment benefits. He is also excused from the usual requirement of unemployment benefits — that he look for a job.

As part of the program, states screen interested applicants to select those likely to exhaust their benefits without regaining a job with wages. Typically, once workers are approved for the assistance, they must develop a business plan, and they get counseling and training.

One researcher of the idea says it's a high threshold to acquire the "suite of skills" to run a business: doing the books, writing business and marketing plans, gathering expertise in business and workplace regulations.

"It does address the needs of a small group of people," said Wayne Vroman, an economist with the Urban Institute in Washington, D.C. "But in its current structure, it's destined to remain a small, boutique kind of program."

Rigorous research on the success of the assistance is limited.

Sanderlin said he has done two non-scientific studies, one earlier this year. By e-mail and letter, he surveyed the bulk of the people who got the aid in 2006-07 — about 500 people. About a fifth responded, with most of those saying they had started a business. About two-thirds of those said they were still in the business, most without employees.

Ocampo said he's doing well with his business plan, a focused group of high-tech clients with overlapping customer bases. He said the aid is "basically a little bit of wind beneath my wings" and said he's bringing in enough to give him confidence.

"Frankly, the way it's going, I don't know if I'll ever go back to be a W-2 employee," he said.