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New Help for the Unemployed Eager to Launch Businesses

If you're out of work, you may soon be able to continue collecting unemployment checks while starting a new venture

By Richard Eisenberg

The latest news about escalating jobless numbers and increased layoffs is quite discouraging, but there’s one potential bright spot: a new federal government initiative may soon make it possible for you to continue collecting unemployment checks while launching a new business.

First, the bad news. In the past few days, report after report has indicated that the job situation is dreary:

  • The consulting firm Challenger, Gray & Christmas said employers plan to cut 61,887 workers from their payrolls in May. That's 67 percent more than in May 2011 and the most jobs cut since last September.
  • The U.S. Labor Department said the number of Americans filing for first-time unemployment benefits rose by 10,000 to 383,000, the highest level in five weeks. (Roughly 6.1 million Americans currently receive unemployment benefits.)
  • Most ominously, the Labor Department said the national unemployment rate inched up to 8.2 percent, from 8.1 percent in April, and the economy gained just 69,000 jobs in May — less than half the number of new jobs economists expected.

To make matters worse, due to a recent congressional action, hundreds of thousands of Americans who’ve been unemployed for more than six months are getting their final unemployment checks sooner than expected, according to The New York Times. The jobless in 23 states have lost up to five months of benefits, the Times reported, and some states are simultaneously making it harder for residents to qualify for the first few months of state assistance.
The sliver of good news is that it may soon become easier to claim benefits if you’re out of work and want to start a business.

Currently, in nearly every state, you can get unemployment checks only if you’re searching for a job. Typically, your state unemployment office will halt your checks if it learns that you’re trying to launch a company. (The exceptions: Delaware, Maine, New Jersey, New York, and Oregon.)
Jane Oates, assistant secretary of employment and training administration at the U.S. Department of Labor, told me “some states say you must approach four employers a week — and provide the names” to receive benefits. “You can see why someone would be afraid to enroll in state-run classes on how to start a business,” she added.
But the Labor Department just announced that it’s offering states a total of $35 million if they create self-employment assistance programs (or expand them, in the case of the five states that already provide help). The programs would not only provide unemployment benefits for up to 26 weeks to would-be entrepreneurs, but they’d also offer training to get your startup off the ground. Participants would be required to submit a business plan to their state unemployment office to qualify for the training and to avoid forfeiting benefits.

“We’re optimistic that many states will look into this, because there are many people who really believe the best way to get a job is to create it yourself,” Oates said.
Unemployment checks alone, of course, aren’t large enough to fully finance a new business, let alone daily living expenses — the average weekly payout is just $295. But it would certainly be a relief to know that your benefits won't disappear just because you want to be your own boss.
Do these self-employment assistance programs actually get people working? Anecdotal evidence says yes.
Their leading congressional proponent, U.S. Sen. Ron Wyden (D, Ore.), wrote on that nearly half the entrepreneurs who’ve participated in Oregon’s program have created an average of three new jobs. And 77 percent of Oregonians who’ve used the program since 2004 are still in business, according to
Oates couldn’t tell me how many states will change their rules and start self-employment assistance programs, or when they might go into effect. The Labor Department will update its website whenever new states sign on, she said.
To help increase the chances that your state will allow wannabe entrepreneurs to maintain unemployment benefits throughout the start-up phase, Oates recommends voicing your support for a local self-employment assistance program. “Let your state officials know you want them to adopt this,” she says. 
Speaking up just might help you become part of the solution to the national unemployment problem.
One more thing: I strongly encourage you to read Bloomberg Businessweek’s latest cover story, "Back to Work," which tells how 12 long-term unemployed people returned to the workforce. It’s inspiring.

Photograph of Richard Eisenberg
Richard Eisenberg is the former Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and former Managing Editor for the site. He is the author of "How to Avoid a Mid-Life Financial Crisis" and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS MoneyWatch. Read More
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