You’re the Boss Blog: Today in Small Business: Founded During the Recession

Recession Reverses California Airport’s Growth

The greatest inconvenience awaits those who head to the taxi stand: sometimes there are no cabs. One has to be called.

“Truthfully, I love this,” Annette Long said as she prepared to check her bags for a recent flight, thrilled to be missing the freeway traffic and crowds she encounters flying out of Los Angeles International Airport. “It’s so easy.”

But what makes traveling so pleasant for passengers like Ms. Long also underscores the problem facing this regional airport, which, like the Inland Empire region that it serves, is still reeling from the devastating impact of the recession.

As airports show slow but steady signs of recovery, with passenger traffic nearing pre-recession levels nationally, the passenger traffic at Ontario has plummeted 40 percent since its 2007 peak of 6.9 million, according to Federal Aviation Administration figures. The decline, fed by a confluence of economic misfortune, a change in airline business practices and local political turf wars, is projected to continue through the end of the year. It has left Ontario with traffic levels around four million, about what they were in the mid-1980s, a decade before construction of two modern terminals that were supposed to make this airport a linchpin of the region’s economic growth.

But like the housing booms and busts that have driven the economic prospects of the area over the last 25 years, the airport’s plight has left some to wonder if such ideas were too speculative.

Ontario’s experience mirrors that of other smaller airports in large markets — like Islip and Newburgh in New York — which expanded to handle added traffic only to see airlines pull back. The Inland Empire, which includes San Bernardino and Riverside Counties, continues to be one of the fastest-growing regions in California, with more than four million residents, but the lure is affordable housing, not high-paying jobs. The region is projected to have a double-digit unemployment rate through 2015. And last week, a judge cleared the way for the city of San Bernardino to declare bankruptcy.

“With the benefit of hindsight, it might have been overreaching when they expanded,” said Sampath Rajagopala, a professor of data sciences and operations at the University of Southern California’s business school. “Airlines can never operate at a profit if they rely on consumer business. They need business passengers. Yes, there are a lot of people living there, but they are a lot more price-sensitive.”

It is not just the economy that has crippled the Ontario airport. There has been a change in the way airlines operate, analysts say, prizing profitability now more than market share, which has driven airlines away from smaller airports to larger ones nearby.

Southwest Airlines, the main tenant at Ontario, began there in 1985 with five daily flights to Phoenix. It once flew 64 flights a day from Ontario in the late ’90s, but is now down to 35 flights a day. An additional reduction of 12 percent has been announced for January. At the same time, it has expanded service at Los Angeles International.

Brad Hawkins, a Southwest spokesman, said that cost “is by far the most important determinant in how we operate.” The company’s service to Ontario, he said, “is where it should be.”

This has left Ontario with a conundrum: declining flights mean that airports must charge airlines higher fees per passenger to recoup expenses, and Ontario’s fee of $11.12 per passenger was close to the $12.18 that Los Angeles International charged in the 2012-13 fiscal year, according to airport officials who set the fees.

Set Back by Recession, and Shut Out of Rebound

He was also a guest that month at a White House forum on joblessness, in recognition of his work creating Neighbors-helping-Neighbors U.S.A., a volunteer networking organization with 28 chapters in New Jersey serving 1,200 unemployed, mainly white-collar, baby boomers. “John has one of the best volunteer organizations out there,” said Ben Seigel, a deputy director at the Labor Department. “He’s tireless and always upbeat.”

Lately Mr. Fugazzie has been feeling a little weary and beat down. One morning last October, just before his 57th birthday, he was laid off and, carrying a box of belongings from his office, driven home in a car service hired by the company. In the 10 months since, he has applied for more than 400 positions and had 10 interviews, but still has no job.

He and his family are living in his 88-year-old mother’s home, and last month he awoke at 4:30 a.m., sweating profusely, in the midst of a heart attack.

As happens to many Americans, when he lost his job, he lost his health insurance. He now owes $171,569.44 for the six nights he spent at the hospital.

And so on the evening of Aug. 15, at a meeting of the job club he himself started here two years ago, he told the others he was just like them. “I need a job,” he said. “I need to make money now.”

Most of the 15 men and women meeting at the library in this prosperous suburb were middle-aged or older, people who had worked all their lives, but lost jobs in the recession and its aftermath and have not been able to get back to where they were. Many of them worry that they never will, in part because of discrimination by employers against older workers.

On the statistical surface, boomers seem better off than other age groups. According to the Bureau of Labor Statistics, the unemployment rate for workers 55 to 64 (the category that best matches boomers, who range from 48 to 67) was 5.4 percent in July, compared with 7.4 percent for the general population.

But almost every other number from the bureau makes it clear that while the economy may be improving, a substantial number of older workers who lost jobs — even those lucky enough to be re-employed — are still suffering. Two-thirds in that age group who found work again are making less than they did in their previous job; their median salary loss is 18 percent compared with a 6.7 percent drop for 20- to 24-year-olds.

The re-employment rate for 55- to 64-year-olds is 47 percent and 24 percent for those over 65, compared with 62 percent for 20- to 54-year-olds. And finding another job takes far longer: 46 weeks for boomers, compared with 20 weeks for 16- to 24-year-olds.

Nor are those who believe age discrimination was a factor likely to have much luck in court. In 2009, just as the economy was hitting rock-bottom, the Supreme Court issued a ruling that toughened the standard for proving bias.

“It’s easier for younger workers to bounce back,” says Mr. Seigel of the Labor Department. “They don’t have many financial obligations. Older workers are supporting families; they may be supporting parents. They can’t afford to spend two years going back for a degree to retrain.”

At the Aug. 15 meeting, Barbara Braun, who worked as a marketing director for a pharmaceutical company, said she wasn’t able to relocate to California when the company moved. “I have a mother with Alzheimer’s, I think it would have killed her,” she said. “Our lives are full of complications we didn’t have at 35.”

They have no doubt that their age is held against them, yet work to keep hopeful. When a woman suggested shaving a decade off her résumé and not posting a photo on networking and job search sites to hide her age, Mr. Fugazzie advised against it. “When you go to the interview, you’re going to look like who you are,” he said. “To waste time hiding it when you’re only going to lose at the other end makes no sense. If they don’t want someone your age, you don’t want them.”

Today's Economist: Lessons of the Great Recession: How the Safety Net Performed

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College Graduates Fare Well in Jobs Market, Even Through Recession

The unemployment rate for college graduates in April was a mere 3.9 percent, compared with 7.5 percent for the work force as a whole, according to a Labor Department report released Friday. Even when the jobless rate for college graduates was at its very worst in this business cycle, in November 2010, it was still just 5.1 percent. That is close to the jobless rate the rest of the work force experiences when the economy is good.

Among all segments of workers sorted by educational attainment, college graduates are the only group that has more people employed today than when the recession started.

The number of college-educated workers with jobs has risen by 9.1 percent since the beginning of the recession. Those with a high school diploma and no further education are practically a mirror image, with employment down 9 percent on net. For workers without even a high school diploma, employment levels have fallen 14.1 percent.

But just because college graduates have jobs does not mean they all have “good” jobs.

There is ample evidence that employers are hiring college-educated workers for jobs that do not actually require college-level skills — positions like receptionists, file clerks, waitresses, car rental agents and so on.

“High-skilled people can take the jobs of middle-skilled people, and middle-skilled people can take jobs of low-skilled people,” said Justin Wolfers, a professor of public policy and economics at the University of Michigan. “And low-skilled people are out of luck.”

In some cases, employers are specifically requiring four-year degrees for jobs that previously did not need them, since companies realize that in a relatively poor job market college graduates will be willing to take whatever they can find.

That has left those who have spent some time in college but have not received a bachelor’s degree to scramble for what is left. Employment for them fell during the recession and is now back to exactly where it began. There were 34,992,000 workers with some college employed in December 2007, and there are 34,992,000 today.

In other words, workers with four-year degrees have gobbled up all of the net job gains. In fact, there are more employed college graduates today than employed high school graduates and high school dropouts put together.

It is worth noting, too, that even young college graduates are finding jobs, based on the most recent data on this subgroup. In 2011, the unemployment rate for people in their 20s with at least a bachelor’s degree was 5.7 percent. For those with only a high school diploma or a G.E.D., it was nearly three times as high, at 16.2 percent.

Americans have gotten the message that college pays off in the job market. College degrees are much more common today than they were in the past. In April, about 32 percent of the civilian, noninstitutional population over 25 — that is, the group of people who are not inmates of penal and mental facilities or residents of homes for the disabled or aged and who are not on active military duty — had a college degree.

Twenty years ago, the share was 22 percent. Given the changing norms for what degree of educational training is expected of working Americans, employers might assume those who do not have a four-year degree are less ambitious or less capable, regardless of their actual ability.

These forces might help explain why there is so much growth in employment among college graduates despite the fact that the bulk of the jobs created in the last few years have been low-wage and low-skilled, according to a report last August from the National Employment Law Project, a liberal research and advocacy group. Today nearly one in 13 jobs is in food services, for example, a record share.

Clearly, positions in retail and food services are not the best use of the hard-earned skills of college-educated workers, who have gone to great expense to obtain their sheepskins. Student loan borrowers graduate with an average debt of $27,000, a total that is likely to grow in the future.

But nearly all of those graduates are at least finding work and income of some kind, unlike a much larger share of their less educated peers. And as the economy improves, college graduates will be better situated to find promotions to jobs that do use their more advanced skills and that pay better wages, economists say.

The median weekly earnings of college-educated, full-time workers — like those for their counterparts with less education — have dipped in recent years. In 2012, the weekly median was $1,141, compared with $1,163 in 2007, after adjusting for inflation. The premium they earn for having that college degree is still high, though.

In 2012, the typical full-time worker with a bachelor’s degree earned 79 percent more than a similar full-time worker with no more than a high school diploma. For comparison, 20 years earlier the premium was 73 percent, and 30 years earlier it was 48 percent.

And since a higher percentage of college graduates than high school graduates are employed in full-time work, these figures actually understate the increase in the total earnings premium from college completion, said Gary Burtless, a senior fellow at the Brookings Institution, an independent research organization.

So, despite the painful upfront cost, the return on investment on a college degree remains high. An analysis from the Hamilton Project at the Brookings Institution in Washington estimated that the benefits of a four-year college degree were equivalent to an investment that returns 15.2 percent a year, even after factoring in the earnings students forgo while in school.

“This is more than double the average return to stock market investments since 1950,” the report said, “and more than five times the returns to corporate bonds, gold, long-term government bonds, or homeownership.”

Euro Area Recession Is Expected to Deepen

The new forecasts stood in stark contrast with figures from the United States on Friday that showed that more new jobs were created in April than expected, which pushed the unemployment rate to a four-year low. While American job creation is still slower than in a typical recovery, the new data could ease concerns of a sharp slowdown in the U.S. economy.

In Europe, far from delivering relief, the outlook presented by Olli Rehn, the Union’s commissioner for economic and monetary affairs, stoked further concerns that unemployment risked becoming endemic and could eventually cause social upheaval.

Unemployment is expected to reach 11.1 percent across the European Union this year and hit 12.2 percent in the euro zone. It is expected to remain at those levels for much of 2014, according to the Union’s spring forecast, which was released Friday. That picture is distinctly worse compared with 2012, when 10.5 percent were without jobs across the Union and 11.4 percent in the euro area.

Given the fragmented structure of the 27-nation Union, economists and analysts say there are few real policy options for easing the situation any time soon.

“We are living through a very difficult process of adjustment following the financial crisis” and that “is having very unfortunate toll on employment,” Mr. Rehn said during a news conference. “In view of the protracted recession,” he said, “we must do whatever it takes to overcome the unemployment crisis in Europe.”

Mr. Rehn offered to give some countries longer to meet their budget targets. He also urged a quicker pace of economic liberalization in countries like France and said it was necessary to get credit flowing to households and businesses, especially in Southern Europe.

But analysts say remedies may be hard to find.

Unless the euro zone countries are willing to pool their debt and finances and engage in uniform economic policies — which is politically unlikely — the most effective medicine for the euro zone would be for Germany to stimulate its own economy to raise consumer demand for more of the goods sold by beleaguered nations in Southern Europe, said John Springford, a research fellow at the Center for European Reform, a research organization in London.

Another effective measure, he said, might be for Germany to drop its opposition to more direct lending by the European Central Bank to small and midsize companies in those countries.

“Relying less on exports, and more on domestic demand, would also be good for Germany as it’s starting to feel recessionary effects from the south,” Mr. Springford said. But, he acknowledged, “those steps would be very difficult politically for the government in Berlin to take.”

Nicolas Véron, a visiting fellow at the Peterson Institute for International Economics in Washington and a senior fellow at Bruegel, a research organization in Brussels, said he did not expect European banks to significantly regain confidence to start lending to small and midsize businesses until late 2014 at the earliest, when the E.C.B. is expected to take over supervision of the European Union’s biggest lenders.

“Credit allocation in Europe is clearly dysfunctional,” Mr. Véron said, “and that’s hugely serious because lending in Europe is so reliant on banks compared to the United States, where there are far more diverse sources of capital, like bond markets and nonbank intermediaries.”

On Thursday, the E.C.B. cut rates to a record low to do what it could to spur growth. Bond markets responded favorably, with Spanish 10-year yields falling below 4 percent Friday for the first time in a couple years, and Italian 2-year yields below 1 percent for the first time ever.

Racial Wealth Gap Widened During Recession

“It was already dismal,” Darrick Hamilton, a professor at the New School in New York, said of the wealth gap between black and white households. “It got even worse.”

Given the dynamics of the housing recovery and the rebound in the stock market, the wealth gap might still be growing, experts said, further dimming the prospects for economic advancement for current and future generations of Americans from minority groups.

The Urban Institute study found that the racial wealth gap yawned during the recession, even as the income gap between white Americans and nonwhite Americans remained stable. As of 2010, white families, on average, earned about $2 for every $1 that black and Hispanic families earned, a ratio that has remained roughly constant for the last 30 years. But when it comes to wealth — as measured by assets, like cash savings, homes and retirement accounts, minus debts, like mortgages and credit card balances — white families have far outpaced black and Hispanic ones. Before the recession, white families, on average, were about four times as wealthy as nonwhite families, according to the Urban Institute’s analysis of Federal Reserve data. By 2010, whites were about six times as wealthy.

The dollar value of that gap has grown, as well. By the most recent data, the average white family had about $632,000 in wealth, versus $98,000 for black families and $110,000 for Hispanic families.

“The racial wealth gap is deeply rooted in our society,” said Caroline Ratcliffe, one of the authors of the Urban Institute study. “It’s here, it’s not going away, and we need to care about it.”

Many experts consider the wealth gap to be more pernicious than the income gap, as it perpetuates from generation to generation and has a powerful effect on economic security and mobility. Young black people are much less likely than young white people to receive a large sum from their parents or other relatives to pay for college, start a business or make a down payment on a home, for instance. That, in turn, makes their wealth-building prospects shakier as they move into adulthood.

Two major factors helped to widen this wealth gap in recent years. The first is that the housing downturn hit black and Hispanic households harder than it hit white households, in aggregate. Many young Hispanic families, for instance, bought homes as the housing bubble was inflating and reaching its peak, leaving them saddled with heavy debt burdens as house prices plunged in places like suburban Phoenix and inland California.

Black families also were hit disproportionately by the housing collapse, because heading into the recession housing constituted a higher proportion of their wealth than for white families, leaving them more exposed when the market crashed. Higher unemployment rates and lower incomes among blacks left them less able to keep paying their mortgages and more likely to lose their homes, experts said.

Discriminatory lending practices were also a factor. “We know that communities of color, their rate of subprime or predatory loans was twice what it is in the overall population,” said Tom Shapiro, the director of the Institute on Assets and Social Policy at Brandeis University.

Black families also suffered bigger hits to their retirement savings, the Urban Institute found. On aggregate, the value of black families’ retirement accounts shrank 35 percent between 2007 and 2010, while white families’ accounts actually gained 9 percent over the same period. With lower earnings and higher unemployment rates leaving them with a thinner safety net to begin with, black families were more likely to take funds out of the market when it was depressed, leaving them out in the cold as the market recovered.

“That reservoir of what you can dig into for emergencies and contingencies is a lot shallower in communities of color,” Professor Shapiro said. “That pushes black families to sling off assets, like I.R.A.’s or stocks, that you might have had another goal in mind for.”

You're the Boss Blog: Debating the Merits of Hiring Great Recession Graduates

Avoiding the pitfalls of fast growth.

Intrigued. Inspired. Insulted. I summoned all three feelings as I glanced through the responses to my last post, “Why I Like to Hire Great Recession Graduates.” In the post, I talked about how many recent graduates — tempered by the tough economy they have experienced — are making excellent employees in fast-growth companies where a hunger to work and a will to win override the need for entitlements, praise and corner offices. In fact, I suggested, these recent graduates have adjusted to the new reality much better than some of their parents.

While my opinion has not changed, I will say this – I could hear my associates cackling and laughing as some of the angry comments came my way. No doubt the commenters said some things that my associates have long thought and always wanted to say, so they did some good for all of us.

Now, before my detractors get too carried away in delight, I want to stress a couple of things. First, I am an entrepreneur who loves a fast-growth culture where no whining is allowed, period. And as you will see below, I will offer in response a solution that can perhaps get us all to a higher level of thinking, which is my goal as a blogger.

I also want to say that while I was not insulted by the zingers that questioned my intellect and even my humanity, I was insulted for a different reason. Many entrepreneurs called and sent e-mails to say that they would have liked to back me up in the comment section — but they feared that predatory lawyers might make life difficult for them in the future. Now, that is an insult – when the people who should be protecting our right to free speech are stifling it. But perhaps that is a post for another day.

As an entrepreneur educator, I was intrigued by the stark difference in the response that came my way on Twitter and in the blog’s comment section. I got my clock cleaned in the comment section, but on Twitter I discovered that the communication gap is even greater than I suggested in my post. While the response to my post, by my informal calculation, was 90 percent negative among Times commenters, it was 80 percent positive on Twitter. What does that tell us?

Millennials are using social media for news, so it is not just social and it is not just business, as I wrote. It is a way of life for recent graduates. I would say that this generational communication divide is the widest it has been since Elvis and rock ‘n’ roll replaced Lawrence Welk and the waltz. With the Great Recession graduates getting their news on Twitter and Facebook feeds, they are very close to putting down print newspapers and magazines for good. The “cool” factor is playing big here.

As I was going down my office elevator last week, a millennial told me, “I read your blog — you rock.” I must confess at the moment I was feeling some trepidation from all of the negative comments on the blog, so I tried to suggest that she express that positive reaction with a comment of her own. She gave me kind of an OMG frown and said, “I will retweet it.” Here is what I learned from that response: a retweet with a one-liner is the new letter to the editor. Just as rock went from Elvis Presley to Alice Cooper, we may be heading for the three-second commercial. I could beg the millennials to read The New York Times on Sunday and tell them how wonderful I think it is, but it would not do any good. The times, they are a-changing.

After my elevator conversation left me feeling more like Lawrence Welk than Elvis, I was soon inspired by Karthik Selvaraj, who lives in India and graduated from Carnegie Mellon last December. Mr. Selvaraj, who had come to my post through social media powerhouse LinkedIn, sent an e-mail to say that he wanted to bring this new breed of entrepreneurship to India. Yes, while I cringed when I read many of the comments, I smiled when I saw the Twitter cheers, and I was overjoyed to see that my intended message was received by many around the world.

My proposed solution is to ask all of us to be more entrepreneurial — at all levels of a company. Yes, I could have been more reverent about the job plight of many who have struggled the last few years, but I don’t see my job as being Mr. Rogers where I tell everyone in the neighborhood how wonderful they are. My goal is to provoke thought on how entrepreneurial companies can get to the next level.

Here is the deal: the old stuff doesn’t work any more. And that’s why I want to hire people who are trying and creating new things. But I want to stress again — I am not the Grinch looking to steal cheap labor. In today’s environment, everyone is measured on our added value to the enterprise. I think the Great Recession graduates will do better than their parents on every economic level over the next 10 years because they are willing to take more risks on the front end. And for that, for being more entrepreneurial, they will be — and should be — rewarded for taking that additional risk, with both raises and equity.

Again, I am talking here about fast-growth enterprises. I’m not talking about small businesses or corporate America. There is always a place for wisdom and knowledge. But there is also a place for fresh ideas — especially when you are trying to get to the next level. Can you imagine if there had been Twitter at Woodstock?

Cliff Oxford is the founder of the Oxford Center for Entrepreneurs. You can follow him on Twitter.

Euro Watch: Euro Zone Data Point to Recession in 3rd Quarter

Business activity and new orders in the 17-nation currency bloc declined in the three months through the end of September, according to a survey of purchasing managers by Markit Economics, a financial data provider. Markit said its composite index came in at 46.1 in September, ticking down from 46.3 in March but revised up from its initial estimate of 45.9.

A value below 50.0, where the composite index has remained for eight straight months, suggests the economy is contracting. Ireland was the only country to report an increase. German activity was largely unchanged, and French activity fell sharply.

Chris Williamson, Markit’s chief economist, said in a statement that it appeared “inevitable” that the euro zone returned to recession in the third quarter, following a 0.2 percent decline in the second quarter. The commonly accepted definition of recession is two consecutive quarterly declines in gross domestic product.

“There therefore seems little scope for a return to growth in the fourth quarter,” Mr. Williamson said. “The uncertainty is perhaps whether policy makers will be able to induce an improvement in business and consumer confidence to help ease the rate of decline, or whether the pace of downturn will accelerate further towards the end of the year.”

The E.C.B. meeting Thursday comes as Spain, which is battling to meet demands for fiscal consolidation amid a devastating recession, is thought to be preparing to ask its European partners for a bailout. Prime Minister Mariano Rajoy said Wednesday that no bailout request was imminent.

After a period of intense activity to calm the euro zone crisis, the E.C.B. is not expected to announce major new policy actions Thursday following a meeting of its governing council in the Slovenian capital of Ljubljana.

Last month, Mario Draghi, the president of the E.C.B., set out the terms for the central bank to begin buying bonds of countries like Spain to hold down their borrowing costs. One of the conditions was that countries must request help from the euro zone bailout fund. Until Spain takes that step, the E.C.B. is not likely to buy Spanish bonds.

The E.C.B. is not expected to cut the benchmark interest rate, which is already at a record low of 0.75 percent. Mr. Draghi has expressed concern that the official rate is no longer having much effect on borrowing costs for business and consumers in the troubled countries.

The rationale for E.C.B. bond buying is that by lowering the cost of government borrowing, interest rates in the private sector would also fall. Market interest rates in euro zone countries like Italy tend to track the rates that their governments pay.

In addition, a rate cut now would leave the E.C.B. with few policy options if the situation in the euro zone deteriorates further.

“While a rate cut could easily be justified by the economic outlook,” analysts at ING wrote in a note Wednesday, “we think that the E.C.B. is not yet willing to fire this very last shot.”

European stocks were mixed in afternoon trading Wednesday. The Euro Stoxx 50, a barometer of euro zone blue chips, was down 0.13 percent, and the FTSE 100-share index in London was up 0.11 percent.

The Bank of England is also due to announce an interest rate decision Thursday, though most observers believe the central bank will not enact any new stimulus measures in light of recent data showing that the British economy is strengthening.

The euro was at $1.2903, down from $1.2940 late Tuesday in New York.

David Jolly contributed reporting from Paris.