A wide and worsening disconnect between the skill needs of 21st century employers, including startups, and the skills of graduates from American high schools, colleges, and universities – often referred to as the “skills gap” – is arguably the most significant obstacle to the full productive capacity of the U.S. economy and to our nation’s ability to fulfill its sacred promise of providing opportunity for all American citizens. Roundtables with entrepreneurs conducted regularly across the country by CAE staff reveal that finding job applicants with appropriate skills is one of the most difficult challenges confronted by American startups. “We have the jobs, and need to fill them to survive and grow,” they tell us. “But we can’t find enough people with the skills we need.”
The President should direct the Department of Commerce and the Department of Education to immediately co-establish the U.S. Business-Education Workforce Dialogue – a framework of ongoing discussion and collaboration between business and education leaders to regularly examine kindergarten through grade 12, community college, and university curricula to ensure that the nation’s education system serves the broader educational needs of American students, as well as the skill requirements of 21st century businesses.
The Dialogue should include educators at K-12 schools, community and vocational colleges, and universities, as well as leaders of multinational corporations, regionally active firms, small businesses, and young startups. Dialogue participants should meet on a regular basis – at least semi-annually – in pursuit of a robust and specific agenda, facilitated by a dedicated staff.
Importantly, the Departments should neither set the agenda for the Dialogue nor seek to pre-determine its outcomes. Rather, the Administration’s role should be to establish, facilitate, and encourage the Dialogue, allowing business and education leaders to identify the relevant issues and, working together, develop and implement effective solutions, with the help of policymakers.
A particular focus of the Dialogue should be to better leverage the value of the nation’s 1,200 community colleges. Whether serving as an educational “on-ramp” for first generation college-goers or low-wage/low-skill adults, offering cutting-edge occupational training, or working with businesses to provide continuing education and training for their employees, community colleges are the natural backbone of the nation’s workforce development efforts.
At its best, the Dialogue should seek to make employers fully integrated partners with American schools, colleges, and universities in producing both a highly educated and appropriately trained, “ready-on-day-one” workforce. Employers should not only communicate their skill needs to educators, but also provide business community input into curricula determinations, help set aptitude standards, develop apprenticeship programs and work/study arrangements, and encourage active business professionals and other practitioners to serve as teachers, instructors, assistants, advisers, and mentors.
This kind of active collaboration would likely produce substantial savings for businesses – U.S. employers spend more than $415 billion each year on informal on-the-job training and an additional $175 billion each year on formal education and training, according to Georgetown University’s Center on Education and the Workforce.
A regular and robust dialogue between U.S. business and education leaders offers tremendous and highly tangible potential benefits to the nation and its citizens. Economists at Harvard University have estimated that if the math proficiency of U.S. students were raised to levels currently observed in Canada and South Korea, U.S. economic output could be expanded by “nothing less than 75 trillion” over the next 80 years – roughly $1 trillion annually
Student loan debt, a serious and worsening problem for years, has now reached levels that threaten America’s economic future. According to the Federal Reserve, total outstanding student loan debt reached $1.56 trillion as of Sep. 30, 2017, more than tripling from $480 billion in 2006. America’s college class of 2017 graduated with an average debt of $39,400, up 6 percent from the previous year. In total, some 44 million Americans — one in four adults — are paying off student loans.
Mounting student debt poses serious challenges to the U.S. economy. A particularly dangerous anti-growth effect of record student debt is its depressive impact on entrepreneurship. Recent research has demonstrated that new businesses, or “startups,” are disproportionately responsible for the innovations that drive economic growth and account for virtually all net new job creation.
But starting a business is risky – nearly half of all startups fail within five years. Launching a new business while carrying a mountain of student debt can be virtually impossible. An analysis released last May found that “student debt is negatively related to the propensity to start a firm, particularly larger and more successful ventures.”
Indeed, millennial entrepreneurship is in free fall. The share of Americans under 30 who own a business has plunged 65 percent since the 1980s and is now at a 25-year low. According to a 2016 Small Business Administration report, millennials are the least entrepreneurial generation in recent history. Such circumstances amount to nothing less than a national emergency, which requires a commensurately serious policy response.
With this reality in mind, we propose that Congress pass new legislation that we’ve tentatively entitled the “Entrepreneurship, Growth, and Opportunity Act” (EGOA). The legislation would be modeled on the Public Service Loan Forgiveness (PSLF) program, which was created by the College Cost Reduction and Access Act of 2007 (CCRAA). Under the terms of PSLF, former students who are full-time employees at a federal, state or local government agency, or a 501(c)(3)-designated organization, and who have made 120 on-time minimum student loan payments, are eligible to have their remaining student debt forgiven.
EGOA would have four principal elements.
First, entrepreneurs launching new businesses and those choosing to work for a startup would be permitted to consolidate all existing student loans, both federal and private, into a single fixed-rate loan under the terms of the Federal Loan Consolidation Program, created in 1986.
Second, to provide immediate debt relief, minimum payments in service of the newly consolidated debt would be capped at $200 per month, or $2,400 annually. To provide further relief, annual payments on the consolidated student loan would be deductible from taxable income, an approach the state of Maine has recently implemented.
Third, if the entrepreneur or startup employee remains at a startup for five years (either a single firm or multiple new businesses) and has made loan payments of at least $200 on time for 60 months (five years) — for a total of $12,000 — any remaining student debt would be forgiven.
To ensure that such a program is also in the interest of the taxpayer, we envision one final element of EGOA. We propose that entrepreneurs who participate in the EGOA program for five years and have their remaining student debt forgiven and whose total compensation – salary plus the market value of any equity awarded – exceeds $250,000 at any time during the subsequent 10 years, pay the U.S. Treasury a small percentage – perhaps 1 percent – of their total annual compensation.
Under the terms of EGOA, in other words, the U.S. taxpayer would, in effect, swap the forgiven debt for a stake in the entrepreneur’s potential subsequent success, with the possibility of a major pay-off. For example, if a successful entrepreneur’s total earnings over the 10-year period following debt forgiveness were $5 million, a 1-percent assessment would generate a taxpayer bonus of $50,000 – far greater in most cases than the amount of debt forgiven.
Though not without administrative challenges – such as defining qualifying “entrepreneurs” and “startups” – EGOA is a potential solution to the obstructive impact of student debt on entrepreneurship. Freed from the burden of servicing student debt, many would-be entrepreneurs will take the risk of launching perhaps the next Microsoft, Google or Tesla. And the tax receipts generated by the additional economic activity and job creation driven by those new businesses, combined with potential bonus payments made by successful entrepreneurs, make the Entrepreneurship, Growth and Opportunity Act a winner for the U.S. taxpayer.
Foreign-born entrepreneurs have been an important part of America’s economic landscape for many decades. A study released by CAE in December of 2017 found that 43 percent of Fortune 500 companies – and 57 percent of the top 35 companies – were founded by immigrants or a child of immigrants. These companies are headquartered in 68 metro areas across 33 states and employ millions of Americans.
And yet the United States is one of only a few industrialized nations that do not have a visa category for foreign-born entrepreneurs. In recent years, many nations – including China, Germany, France, New Zealand, Australia, and Chile, and most recently Canada and the UK – have created new visas to attract foreign-born entrepreneurs, including American entrepreneurs.
It should also be pointed out that many of the well-documented abuses of the existing H-1B visa process are attributable to the current lack of a clearly defined and lawful pathway for foreign-born entrepreneurs who want to build their new companies in America. Problems associated with the H-1B visa include the fact that such visas are arbitrarily capped at 85,000 per year, the demand far outstrips the supply, large companies benefit disproportionately while smaller businesses are virtually shut out, and recipients must be sponsored by a U.S. company to whom they become indentured servants.
With these realities in mind, CAE proposes the creation of a new visa category – an “entrepreneur visa” – specifically designated for foreign-born entrepreneurs who want to launch new businesses in the United States. To qualify, applicants would have to meet national security requirements and would have to have raised at least $100,000 in initial funding to validate themselves as entrepreneurs and to authenticate the validity of their business idea.
Under the terms of the entrepreneur visa, foreign-born entrepreneurs would be admitted on a temporary basis, say two years. If by the end of that period their business has been successfully launched, is producing verifiable revenue, and has produced jobs for at least two nonfamily members, the temporary visa would be extended – say, for an additional three years. If the new business continues to be successful and has created jobs for at least five nonfamily members by the end of the initial five-year period, the foreign-born entrepreneur would be granted permanent residency in order to continue building their business and creating American jobs. A 2013 study by the Kauffman Foundation concluded that an entrepreneur visa would create between 500,000 and 1.6 million new American jobs within 10 years.
A permanent residency card – “green card” – should be awarded to any foreign-born student meeting national security requirements who completes an undergraduate or postgraduate degree from an American college or university and wants to remain in the United States following graduation. Research has repeatedly demonstrated that immigrants are twice as likely as native-born Americans to start a new business. More than 1 million foreign-born students – the largest foreign-born student population in the word – study at American colleges and universities each year. Current policy requires most to leave the country after graduation, taking their U.S.-acquired education and training with them.
Prior to the passage of the Affordable Care Act, employees had a strong incentive to remain at established firms that provide health insurance without regard to their health status, rather than leaving to launch a new business. By prohibiting insurance companies from taking preexisting conditions into account when setting rates, the ACA provides for the employee mobility necessary for new business formation. Should Congress modify the Act, it should keep the provision protecting those with preexisting conditions, and should also keep – or find a workable alternative to – the individual mandate, which expands insurance populations to cover the higher costs of those with preexisting conditions.
Non-compete agreements should be limited to no more than one year. Such agreements impede talent mobility and deter the launch of new firms. Policymakers should seek to strike an appropriate balance between firms’ legitimate desire to protect trade secrets and proprietary knowledge, and the entrepreneurial economy’s need for new ideas and talent.