Question:
Hello economists! Regarding people who are unemployed --if every one of them went through the motions and started their own small business today (let's assume that part goes off without a hitch) would the economy benefit from the increased occupied jobs, or have no net change from a proportional increase in competition?Or something completely different?
Answer:
There are many assumptions underlying your question. To begin with, we have to ask, why are people currently unemployed? assuming businesses are in it to maximize their profits, then if they are not hiring (which is why there are unemployed people) it must mean it is not in their best interest to hire, at least not at the level of wages potential employees are seeking. Now, if these people, the unemployed, as you speculate, could magically start their own business, they would quickly come to the same conclusion as the firms that didn't hire them; it is not economically prudent to hire under those market conditions. In other words, these new business owners would likely not want to hire many new people. If anything, they would find it hard to find workers (because they all have jobs, in your scenario) and this may raise wages. Unless these new businesses are in areas where incumbent firms are making a lot of economic profits to begin with, chances are the new businesses will not be able to compete with the incumbents. They will perish.
